Canadian public and corporate pension plans administered by Aon Hewitt had a median funded status of 85.4% as of June 30, up from 83.1% three months earlier.
However, plan funding was down from a year earlier, when the median level was 87.1%, Aon Hewitt said Tuesday in a news release.
As of June 30, 9.1% of surveyed plans were fully funded, up from 8% at the end of the first quarter but well below the 26.5% in the second quarter of 2015.
In the latest quarter, plans' funding ratios survived the immediate equity volatility after the June 23 Brexit vote in the U.K., but Aon Hewitt warned that long-term bond yields would continue to decline as a result of that country's vote to leave the European Union. Between June 23 and June 29, the yield on Canadian government 10-year bonds declined by 18 basis points.
The effects of the decline on funded status temporarily was mitigated by an actuarial change implemented in May by the Canadian Institute of Actuaries that increased the credit spreads over benchmark bonds used to calculate solvency, Aon Hewitt said in the news release.
“Brexit understandably created a lot of anxiety around the state of the global economy and the destabilizing effect of nationalist movements, but the reality is that the event itself had minimal short-term impact on our pension clients, who think long term,” said Ian Struthers, partner and investment consulting practice director. “However, we believe the continued decline in bond yields, which is likely only to be aggravated in a post-Brexit world, highlights a longer-term challenge for pensions.”
