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Pension Funds

Canadian pension funding levels rise in second quarter

Canadian public and corporate pension plans' median funding levels rose in the second quarter, buoyed by volatility in the equity markets, according to two reports.

Pension plan clients of Mercer (Canada) had a median funding ratio of 99% in the quarter ended June 30, up 1 percentage point from the end of the previous quarter, the company said in a news release. Also, the Mercer Pension Health index, which tracks the typical Canadian defined benefit plan based on 100% funding as of Jan. 1, 1999, was also up a percentage point in the quarter, to 107%.

Meanwhile, Aon Hewitt Investment Consulting said Canadian pension plans were a median 100.2% funded at the end of the second quarter, 150 basis points higher than the end of the previous quarter. Also, 50.8% of Canadian plans were fully funded as of June 30, up from 45.8% as of March 31.

"We noted at the end of the first quarter that markets had entered a more volatile investment environment, and the second quarter confirmed it," said Ian Struthers, partner and investment consulting practice director at Aon, in a separate news release. "In equity markets, we've seen about a 50% increase in volatility so far in 2018 over last year, but the uncertainty applies beyond stocks. Bond yields fluctuated by almost 50 basis points through the second quarter — and ended up pretty much where they began.

Canadian equity was the top-performing asset class in the second quarter at 6.8% vs. the S&P 500's 5.5% and the 3.8% return of the MSCI All-Country World index, according to Aon Hewitt. Canadian 10-year bond yields were up 8 basis points, but Canadian long-duration bond yields were down 3 basis points.

"The return of volatility to financial markets remains a key theme so far in 2018," Todd Nelson, principal at Mercer (Canada), said in Mercer's news release. "Equity markets have generally bounced back nicely following the sharp sell-off we saw earlier this year, but ongoing geopolitical issues combined with rising trade tensions remain a major concern. Despite the rally we saw during most of the second quarter, the market remains sensitive to these overriding issues."