Funding ratios of Canadian pension plans show modest improvement in Q2

Glimmer of hope as funding ratios show slight uptick

Funding ratios of Canadian pension plans show modest improvement in Q2

The funding ratios of Canadian pension plans within the S&P/TSX Composite index experienced a slight increase during the second quarter, reaching 102.1% by June 30, compared to 101.8% three months earlier, as reported by Aon's Pension Risk Tracker.

In a statement released Tuesday, Aon clarified that the Pension Risk Tracker provides an accounting-based calculation of the aggregate funding position for companies with defined benefit plans in the S&P/TSX Composite Index.

The tracker's analysis revealed that pension assets witnessed a growth of 1.2% throughout the second quarter of 2023. Simultaneously, the long-term Government of Canada bond yield rose by seven basis points over the same period, while credit spreads expanded by four basis points.

As a result, the interest rates used to assess pension liabilities increased from 4.6% to 4.71% during the second quarter. A spokesperson from Aon confirmed this information via email, as reported by Pensions & Investments.

"The muted asset performance and the small increase in discount rates supported a small increase in funded status over the quarter amidst volatility," said Nathan LaPierre, partner - wealth solutions at Aon.

"Pension plans treaded water at healthy funded positions over the last quarter, giving plan sponsors time to consider derisking activities and shape better decisions."