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The solvency ratio of DB plans increased slightly in the first quarter

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April 6, 2018 09:45

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The level of solvency of canadian pension plans defined benefit (DB) clients of Mercer have reached their highest level since 2001 during the first quarter of 2018. Their solvency ratio, the median is 98 % march 30, 2018, increase compared with the rate of 97 % recorded at the end of 2017.

In the first quarter, the solvency of the pension plan has benefited from the slight increase of 5 basis points of the interest rate in the long term. The stock markets have shown volatility. Their effect has had very little negative impact on the financial situation of the majority of the pension plans.

Increased volatility

The level has, however, made a withdrawal in the last weeks of march. Mercer argues that the recent resurgence of volatility is a clear reminder that, in spite of the long bull market of recent years on the market, they can tumble quickly.

The firm added that sponsors of DB plans are frozen or closed, should take advantage of the current financial health of their plans to re-evaluate their current risk profile and see if it is in line with the geopolitical risks posed by the possibility of a trade war world which is coming.

“We think that many of these DB plans are too exposed to risks and their sponsors should consider an asset allocation with less risk, or a purchase annuity,” says the senior adviser of the domain Holdings at Mercer, F. Hubert Tremblay.

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