Canada Pension Funding Ticked Downward in 2015: Report

The collective funding status of Canada’s pension plans fell slightly in 2015, according to Mercer.

Median plan funding was at 88 percent at the beginning of 2015, but now stands at 85 percent.

Poor equity performance – particularly Canadian equities, which returned -8.3 percent for the year – was one reason for the funding decline.

Details from BenefitsCanada:

According to Mercer, the decline in funded status was due to poor equity market performance, the continued decline in long-term bond yields and new mortality tables that reflect increased life expectancy, partially offset by the positive impact of the decline in the Canadian dollar on foreign asset returns.

“There was considerable variability in the financial performance of pension plans in 2015,” said Manuel Monteiro, leader of Mercer’s Financial Strategy Group. “Pension plans with significant Canadian equity holdings and those that hedge their foreign currency exposure experienced larger than average declines in their solvency ratio.”

From an investment perspective, Canadian equities were the poorest performing broad equity asset class in 2015, with a return of -8.3%, according to Brian Dayes, partner at Mercer Investments.

“Two factors that particularly affected the Canadian economy were falling commodity prices and a continued ramp up in oil production, to a near all-time high, bringing the price per barrel down to around US$37,” he added.

US equities fared a bit better, but far from stellar, returning 1.4% in USD; a Canadian investor would have done well though, at close to 22% for the year, in CAD terms, given the fall of the Canadian dollar. International equities also performed better than Canadian equities with the MSCI EAFE returning 5.8% in local currency terms.

A number of the country’s provincial governments – Quebec, British Columbia, Alberta – are weighing reforms that would lessen the burden of pension obligations on governments.

Photo credit: “Canada blank map” by Lokal_Profil image cut to remove USA by Paul Robinson – Vector map BlankMap-USA-states-Canada-provinces.svg.Modified by Lokal_Profil. Licensed under CC BY-SA 2.5 via Wikimedia Commons