Canadian pension plans boost funding in Q1

Aon reports a rise in funded levels for S&P/TSX Index pension plans, marking financial health improvement

Canadian pension plans boost funding in Q1

In an announcement by Aon plc (NYSE: AON), a global professional services firm, it was reported that Canadian defined benefit pension plans have experienced a notable increase in funded levels in the first quarter of the year.  

Specifically, the aggregate funded ratio for these pension plans, which are part of the S&P/TSX Composite Index, rose from 100.7 percent to 105.1 percent over the past three months. This development was highlighted in the Aon Pension Risk Tracker's findings.   

The Aon Pension Risk Tracker, which has been operational since 2013, serves as a vital tool for calculating the aggregate funded position on an accounting basis for companies listed in the S&P/TSX Composite Index that have defined benefit plans.  

Moreover, the tool provides plan sponsors with the capability to monitor their individual plan’s funded status daily, with versions of this pension tracker also being available for indices in the US and the UK, such as the S&P 500.   

Key observations from the quarter ending March 31, underline a positive trend in the financial health of these pension plans. There was a 2.9 percent gain in pension assets throughout the first quarter of 2024.  

Additionally, the period witnessed a significant increase in the long-term Government of Canada bond yield, which rose by 32 basis points relative to the rate in the preceding quarter. Meanwhile, credit spreads narrowed by 9 basis points.  

The cumulative effect of these changes was an uplift in the interest rates used for valuing pension liabilities, which moved from 4.42 percent to 4.65 percent.   

Nathan LaPierre, a partner at Aon's Wealth Solutions, commented on these findings, stating, “The financial health of pension plans in Canada continues to improve.”  

LaPierre further mentioned that this improvement is expected to maintain momentum in de-risking and risk transfer activities among the pension plans.