Worldwide pension funding levels improved dramatically in the third quarter, helped by strong equity market returns and higher bond yields, according to a report from Towers Perrin.
Benchmark pension plans in Brazil, Japan and the United States rebounded well in the third quarter, with funding levels increasing by 12, eight and five percentage points, respectively. Over the 12-month period ended Sept. 30, the funding level of benchmark plans increased 19 percentage points in Brazil, nine percentage points in Japan and eight percentage points in Australia, according to the report.
The benchmark pension plans in Brazil were 106% funded at the end of the third quarter, tops among global plans. Australian benchmark plans were 87% funded; U.K. plans, 83% funded; and U.S. plans, 82% funded.
"This was one of the best quarters we've seen in a long while," Martine Ferland, a Towers Perrin principal, said in a news release accompanying the report. "It's been a relatively uncommon phenomenon in recent years for rising bond yields and very strong equity results to combine simultaneously, but it certainly happened in the third quarter."
However, Towers Perrin analysts warned that despite the third-quarter gains, benchmark plans remain substantially underfunded on average.
"Multinational companies should continue to be vigilant and critically assess the ongoing financial impact of the general decline in funded ratios and the potential impact of different investment strategies on future pension liabilities, on both a domestic and global level," Ms. Ferland said.