Canadian pensions strengthened solvency in Q1: Mercer

Most defined-benefit pension plans in Canada had improved solvency ratios in the first quarter of 2024 from positive asset returns and decreased defined-benefit (DB) liabilities, according to Mercer Canada.

The DB plans tracked in Mercer’s database had an average solvency ratio of 118%, up from 116% the previous quarter. There also were more plans with solvency ratios above 100% compared to the beginning of the year, Mercer said in a report released Monday.

Pension plans that used fixed-income leverage may have experienced stable or improved solvency ratios over the quarter as the Bank of Canada maintained the overnight rate at 5%, the report said. While the overnight rate remained unchanged, interest rates on Canadian bonds with longer terms were higher than they were at the start of the year.

“Members of DB pension plans likely saw continued improvement in the financial health of their plans over Q1,” Jared Mickall, principal and leader of Mercer’s wealth practice in Winnipeg, said in a release. “Solvency ratios were raised by strong equity performance and interest rate increases.”

However, with Canadian interest rates expected to fall in the second half of this year, long-term interest rates on Canadian bonds and the overnight rate are an ongoing focus for pension plans. Pension plans should review whether to retain risk or transfer it to an annuity.

“While a strategic annuity purchase is top of mind for many DB pension plans, a tailored investment strategy is a viable, and in some cases the only feasible, alternative to annuitization,” the report said.

Jonathan Got

Jonathan Got is a reporter with Advisor.ca and its sister publication, Investment Executive. Reach him at jonathan@newcom.ca.