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The canadian pension plans to resume the hair of the beast

by

Frédérique De Simone

5 April 2019 13:30

Photo : Freepik

The solvency of pension plans defined benefit plans has increased rapidly in the first quarter of 2019, thus filling most of the losses incurred by these schemes in December 2018, according to the index Mercer of the financial health of pension plans. Same observation from the point of view ofAon in the wake of its quarterly survey on the solvency ratio of the median.

The intensity is sustained on the canadian annuity market has resulted in a transfer of approximately $ 1 billion of liabilities to insurance companies in 2019, equalling the record reached in the first quarter of 2018. The solvency ratio of the median pension plan clients of Mercer stood at 97 %, as at 31 march. While on the side of Aon, the solvency ratio of the median has reached the mark of 98.5 % at the end of the first quarter of 2019.

Call for caution

“The first quarter has been very good in regards to the performance of the assets of pension funds, especially after a year that most institutional investors would rather forget. National stock markets and global markets rallied, while the volatility that marked the fourth quarter of 2018 has diminished, ” explains Claude Lockhead, partner and executive director of the convenient retirement of the eastern region at Aon.

For his part, F. Hubert Tremblay, senior advisor within the field Assets of Mercer Canada, urges caution and says that ” the volatility of the last few months has scared the plan sponsors and reminded them of how the full funding of a pension plan could be temporary. “

The potential risks

Even if the markets are going well, risks are looming on the horizon, both in Canada and globally, due to elections, the signing of trade agreements and possible diplomatic conflicts to come in 2019.

“It is likely that the volatility of the markets is obvious, given the continuing uncertainty surrounding the monetary policy of developed markets, the global economic growth and the political risk, said Mr Lockhead. Given the economic context, it is likely that the gains made in recent years are eroding very quickly. “

Economic growth slowed

Investors are still cautious, despite a greater stability of world markets, given the global economic growth slowing, argues Jean-Pierre Talon, a member of the partnership at Mercer Canada.

“This economic downturn, combined with political uncertainty, has prompted the central banks to slow down the tightening of their policy in relation to 2018. “Both the Bank of Canada that the u.s. federal Reserve left, respectively, their rate to 1.75% and 2.5 %, during the first quarter.

“The easing of the funding on a solvency basis in Ontario and Quebec is a favor to the place of adherents to the pension plans, because it offers flexibility and protection against the volatility from one year to the other. On the other hand, it forces them to be proactive in establishing its funding policy. A minimum level of funding no longer allow retirement plans established based on an investment horizon of short to medium-term to achieve their goals, ” adds F. Hubert Tremblay.

Due to the recent regulation on the financing, most established regimes in Ontario and Quebec did not suffer the full impact of the funding requirements due to the volatility prior to the payment of benefits. Mercer encourages plan sponsors, especially those of the pension plans defined benefit plans are frozen or closed, to review their policies of financing, investment and risk management.

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