Financial health of Canadian defined benefit pension plans surges to end 2019

Aon’s Median Solvency Ratio at end of Q4 2019 stood at 102.5%

TORONTO, Jan. 02, 2020 (GLOBE NEWSWIRE) -- Driven by rising bond yields and a late-year equity rally, the solvency positions of Canadian defined benefit pension plans increased sharply in the fourth quarter of 2019 to approach all-time highs, according to the latest Median Solvency Ratio survey by Aon, the leading global professional services firm providing a broad range of risk, retirement and health solutions. Through the year, Aon’s Median Solvency Ratio increased by 7.2 percentage points.

Quotes:
“Financial markets began 2019 still recovering from a rocky year, and equities climbed a wall of uncertainty throughout much of the year as a global growth slowdown and trade disputes clouded the outlook for investors,” said Erwan Pirou, Canada Chief Investment Officer, Aon. “Yet the sky did not fall, and a partial resolution of the U.S.-China trade war, the recent UK election and more accommodative monetary policy seemed to put global equity valuations on a surer footing, resulting in overall pension asset returns that easily bested last year’s performance. We are not so confident this sense of renewed optimism will survive 2020, however. 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. Given the financial strength of Canadian pension plans, it makes sense for plan sponsors to further consider their risk mitigation strategies for the new year.”

“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, Senior Partner and Canadian Director, Retirement Solutions, Aon. “Despite a rise in yields through the fourth quarter, the long-term trend is still towards ‘lower for longer,’ given subdued inflation expectations and slowing global growth. As well, Canadian plan sponsors face changes in 2020 and beyond. British Columbia recently joined Quebec and Ontario in moving away from funding rules based on solvency – a move that reflects the fact that the regulatory landscape in Canada is evolving rapidly. 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. We will see whether the respite from financial market volatility and falling yields lasts, but sponsors should not be lulled into complacency by what could turn out to be a short-term phenomenon.”