Canadian pension returns down 10.3% in 2022: RBC

Despite a positive fourth quarter, Canadian defined-benefit (DB) pension plans experienced a double-digit negative return in 2022, according to new data from RBC Investor & Treasury Services.

Defined benefit plans that are part of the RBC Investor & Treasury Services All Plan universe generated a return of 3.8% in Q4, the firm reported on Tuesday. Returns for the year to date remain down by 10.3%.

“Pensions gained traction toward the end of 2022 despite the ongoing volatility caused by embedded inflation and subsequent higher interest rates imposed by central banks,” said Niki Zaphiratos, managing director, asset owners with RBC Investor & Treasury Services, in a release.

However, it was not enough to offset heavy losses during the first six months of 2022.

The 2022 median return is the lowest observed since the 2008 financial crisis, which saw an annual median return of -15.9%.

Canadian equities registered a 6.3% gain in Q4, ending the year as the top performing asset class with a -3.6% annual return. (The TSX Composite index returned 5.9% in Q4, dropping 5.8% over the year.)

Foreign equities returned 9.7% in the quarter, bringing full-year results to -11.3%. They outperformed the MSCI World Index, which returned -12.2%. RBC noted that healthy local currency returns in a majority of developed markets boosted returns for unhedged portfolios.

However, the pension plans saw their largest annual fixed-income decline in over three decades, down 16.8% for the year compared to the -11.7% return for the FTSE Canada Bond Index.

As central banks continued to hike interest rates to curb inflation, inflation-sensitive, longer-duration bonds were the most affected, RBC said.

“It was a challenging year for pension asset managers,” Zaphiratos said. “Both equities and fixed income asset classes, which typically offset each other, experienced losses. However, the rapid rise in bond yields resulted in the lowering of pension liabilities – and most pensions ended the quarter in a better position.”

Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.