Canadian Defined Benefit Plans Surge at End of 2019

The funded ratio of Canadian defined benefit pension plans surged in the fourth quarter of 2019 to a near all-time high of 102.5%, thanks to rising bond yields and a late-year equity rally.

According to professional services firm Aon, its Median Solvency Ratio, which measures defined benefit plans’ financial health by comparing assets to liabilities, was up 7.2 percentage points in 2019.

The sharp increase in funded levels was attributed to Canadian bond yields, which rose during the quarter. The Canada benchmark 10-year yields were up 33 basis points, and the Canada benchmark long-bond yields were up 23 basis points. Because higher yields decrease plan liabilities, they had a positive impact pension solvency during the quarter.

At the same time, the funded levels were also boosted by strong returns on assets for pensions, which was 1.9% in the fourth quarter. That brought the overall return on assets for the year to a robust 15.9%.

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“Financial markets began 2019 still recovering from a rocky year, and equities climbed a wall of uncertainty throughout much of the year,” Erwan Pirou, Aon’s Canada CIO, said in a release.

Pirou said, however, that the firm is “not so confident” the renewed optimism will continue in 2020 as “global growth remains a headwind to stock valuations, and the forces driving a reorientation of global trade and other economic relationships are still in play, suggesting more volatility ahead.”

Aon reported that all equity classes, in Canadian dollar terms, had positive returns during the fourth quarter and for the year. During the final quarter, the MSCI Emerging Markets index was the top performer, increasing 9.5%, followed by the US S&P 500, the global MSCI World index, the international MSCI EAFE index, and the Canadian S&P/TSX composite, which rose 6.8%, 6.3%, 5.9%, and 3.2% respectively.

For the year, the US S&P 500 was the top performer, rising 24.8%, followed by the Canadian S&P/TSX (22.9%), the global MSCI World (21.2%), the international MSCI EAFE (15.9%) and the MSCI Emerging Markets (12.4%).

Aon said that because of the financial strength of Canadian pension plans, plan sponsors may want to consider risk mitigation strategies for 2020.

“Plan sponsors need to separate recent events from long-term trends, and that’s nowhere more applicable than when it comes to bond yields,” said William da Silva, a senior partner at Aon. “Strong solvency positions give plan sponsors an opportunity to put all of their options for managing volatility and risk on the table, from diversification and outsourced investment solutions to full settlement of liabilities.”

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Tags: Aon, Canada, Canadian, Defined benefit (db) pension plans, Funded Ratio, Pension, plan, solvency ratio

UK tax authority HM Revenue and Customs (HRMC) has issued its annual report of top financial crimes of 2019, while also boasting that its fraud investigations have led to more than 600 people being convicted for their part in tax crimes during the past year.

One of the most notable cases in 2019 was the arrest of five men who lured individuals to invest in a fake eco-investment scheme as a tax break for wealthy investors. The £107.9 million ($142.1 million) fraud was one of the UK’s biggest tax crimes, said HRMC. The men had claimed that the money was being invested in carbon emission reduction certificates, which are intended to help countries meet environmental emissions targets set by the United Nations.

The money was diverted, however, to purchase properties in the UK and Dubai. The men were sentenced to more than 43 years in prison and ordered to pay £20 million or serve another 39 years in prison.

In another case, two “professionals” running the ironically named Ethical Trading and Marketing Ltd. were jailed for more than 14 years for attempting to steal in excess of £60 million through a fraudulent tax avoidance scam that falsely claimed to invest in HIV research and conservation. The two allegedly enticed wealthy investors with the promise of tax breaks through the support of tree planting in the Amazon and research into a HIV cure.

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The men created false documents to fraudulently claim expenses and submitted fake scientific reports to HMRC and photos to support their claims. But there was no evidence the tree planting or HIV research had taken place. The pair were helped by Professor Ian Swingland, a world renowned conservation scientist, who joined the fraud to create the fake documents and add credibility to the scheme.

“This was a calculated and cynical crime carried out by men who had no shame in using a worthy cause like HIV research to mask their criminality,” Simon York, HRMC’s director of Fraud Investigation Service, said in a release.

Swingland, who founded the Durrell Institute of Conservation and Ecology at the University of Kent, was stripped of his Most Excellent Order of the British Empire (OBE) award due to his involvement in the crime.

The HRMC also cited its work with Interpol to break up a Europe-wide crime ring involved in money laundering as well as drug and cigarette smuggling that accumulated an estimated €680 million from their crimes between 2017 and 2019.

More than 450 police and customs officers in Spain, Poland, Lithuania, and Estonia carried out raids targeting members of the criminal network, which led to another 18 arrests across Europe. More than 40 properties were searched, which led to seizures of €8 million in cash, diamonds, gold bars, jewelry, and luxury vehicles, as well as a “substantial quantity” of illicit drugs and cigarettes.

“These prosecutions clearly show that we’ll relentlessly pursue those criminals who would try and cheat honest taxpayers,” said York. “It means we’re increasingly taking on ever more complex frauds and well-resourced opponents, including tackling organized criminals who would otherwise undermine our economy and harm our communities.”