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The solvency ratio continues to decline for the pension plans


Justine Montminy

April 26, 2018 09:45

Photo : Freepik

After it announced the decline in the ratio of pension benefit plans in Canada in February, Aon confirms its decline for the first quarter of 2018. According to a survey from Aon, the solvency ratio of the median to the end of the first quarter of 2018 was 98.7 %, compared with 99,2 % in the previous quarter.

“Despite a slight decline in the solvency ratio of the median this quarter, it remains that the funded status of the benefit plans determined remains exceptionally strong,” explains Claude Lockhead, partner and executive director of the convenient retirement of the eastern region at Aon.

The solvency ratio of the median of Aon measure the financial health of a defined benefit pension plan by comparing the total assets to its pension obligations overall in the event of his termination.

Implementation of risk management strategies

According to Mr. Lockhead, plan sponsors should take the opportunity to implement risk management strategies or revise their current strategies. “As some jurisdictions abandoned the funding of the solvency deficit, the majority of plans will soon be a context of risk very different and hence will need to modify their risk management strategy. If we associate this to the market much more active transfer of the risk and pension solutions management, now is the time for pension plan sponsors to take steps to better manage the risks. “

Reduction plans more than fully funded

The proportion of plans more than fully funded also decreased, with 46% of them were fully capitalized in the first quarter of 2018, compared to 47 % in the fourth quarter of 2017 and 48 % in the previous quarter.

“For plans well-capitalized with a goal of solvency or wind-up, the strategies focused on the passive allow you to develop a ‘” path to cover” in order to take advantage of the rising interest rates. All plans must diversify to include more categories of assets, including assets in non-traditional liquid and illiquid. When one does not know from where will come the next storm, it is important to build a portfolio that is resistant to all conditions, ” said Mr Lockhead.

At the end of 2017, the financial health of pension plans defined benefit pension plans in Canada had reached record highs for the decade.

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