Canadian Pension Funded Statuses Hold Steady in Q2

Canadian pension plans are overwhelmingly in a funding surplus and continued to maintain their funded status through the second quarter.

According to the Aon Pension Risk Tracker, funded status for Canadian defined benefit plans within the S&P/TSX composite index remained at an average of 105.3% at the end of June, unchanged from the first quarter of the year.

“The second quarter of 2024 saw pension plans maintain their healthy funded positions,” said Nathan LaPierre, a partner in Aon Wealth Solutions, in a statement. “Markets have continued to provide time for plan sponsors to take action and de-risk in light of their funded positions.”

The Mercer Pension Health Pulse, which tracks the ratio of plan assets to liabilities across 450 public and private pension plans, had an even more positive assessment than Aon. By Mercer’s gauge, the plans’ overall funded status was 118% at the end of the second quarter, unchanged from the end of the first quarter. During 2Q, it actually blipped up even higher to 123% at the end of April before returning to 118%.

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According to Aon, Canadian DB pension assets returned 1.5% in the first quarter. According to Mercer, a balanced portfolio would return 1.7%, as Canadian plan assets gained mostly from international equities and fixed income but were offset by weak domestic equities.

While U.S. equities helped drive up funded statuses not only in Canada, but globally, Canadian equities did not perform as well: The S&P/TSX composite (which tracks Canadian equities) returned negative 0.5% in the second quarter and 6.1% year-to-date, compared with a 5.4% Q2 gain for the S&P 500 and a 19.6% advance, YTD, in Canadian dollars.

The worst-performing Canadian sectors in Q2, per Mercer, were health care (-18.6%), information technology (-5.6%) and communication services and industrials (-3.4% each). The best performers in the quarter were materials (7.4%) and consumer staples (4.1%).

By the reckoning of the Pension Investment Association of Canada, DB plan sponsors had their portfolios roughly evenly split between fixed income, equities and alternative investments, allocating on average 35.85%, 34.33% and 30.26%, respectively, as of December 31, 2022.