Stock markets, interest rates take toll on pension plans

first_img DB plan solvency in best position since financial crisis: FSRA Related news The funding status of Canadian defined benefit (DB) plans dropped sharply in the fourth quarter (Q4) as a result of declines in both equities markets, which hit investment returns, and long-term interest rates, which boosted pension liabilities, Mercer Canada reports.The Mercer pension health index, which represents the solvency ratio of a hypothetical plan, dropped to 102% in Q4 from 112% in the third quarter (Q3), the firm says. Furthermore, Mercer Canada reports that less than 30% of Canadian pension plans were fully funded at the end of the year, down from 60% at the end of Q3. The S&P/TSX composite index dropped by 10.1% in Q4 to finish the year down by 8.9%, Mercer Canada reports. At the same time, U.S. equities also declined by 8.6% (in Canadian dollar terms) during the quarter and global equities were down by a similar amount. Canadian fixed-income markets rose in Q4, with long-term bonds gaining by 1.9%.As a result, a typical balanced pension portfolio would have declined by 3.8% in Q4, Mercer Canada reports: “After defying headwinds for the first three quarters, financial markets finally succumbed to the pressure of rising short-term interest rates, trade wars, and turmoil in certain emerging market economies.”Nevertheless, Mercer Canada points out that Canadian DB plans started the quarter in relatively good shape, funding-wise, which cushioned the impact of the market turmoil.“Canadian pension plans took a significant hit in the fourth quarter, but thankfully they were starting from a very strong position” said Manuel Monteiro, leader of Mercer Canada’s financial strategy group, in a statement.Looking ahead, financial markets may continue to experience heightened volatility in the new year, added Todd Nelson, principal at Mercer Canada, in a statement: “The global economy will face a challenging 2019 with the expectation of central banks continuing on their tightening path and the unsettling political backdrop.” Facebook LinkedIn Twitter Share this article and your comments with peers on social media A see through piggy bank with money coins pogonici/123RF James Langton Keywords Pensions Mature single women are wealthier than mature single men, StatsCan finds Surging bond yields take a bite out of Canadian DB planslast_img read more