Canadian public and corporate pension plans' median funding levels hit new highs in the third quarter, according to two reports.
Aon Hewitt Investment Consulting said Canadian pension plans were a median 103.2% funded as of Sept. 30, up 3 percentage points from the end of the second quarter and the highest level since Aon Hewitt began measuring median funding in 2002. Meanwhile, 58.4% of Canadian plans were fully funded at the end of the third quarter, up from 50.8% as of June 30, Aon Hewitt said.
In a separate report from Mercer (Canada), its Canadian corporate and public pension plan clients had a median 102% funding ratio at the end of the third quarter, up from 99% three months earlier and at the highest level since November 2000. Also, the Mercer Pension Health index, which tracks the typical Canadian defined benefit plan based on 100% funding as of Jan. 1, 1999, was at 112% at the end of the latest quarter, up 5 percentage point.
Mercer's report attributed the third-quarter plan funding boost to a late surge of 20 basis points in long-term interest rates in late September. Strength in the U.S. and international equity markets provided a further boost, Mercer said, although the Canadian equity markets continued to lag.
For the quarter on Canadian dollar terms, Aon said, U.S. equities gained 5.8% and global equities returned 3.2%, but Canadian equities fell 0.6%, international developed markets equities returned -0.4% and emerging markets, -4.8%. Canadian long bonds returned -2.4% and Canadian fixed income overall returned -1%.
"The skies seem to have cleared somewhat" moving into the fourth quarter because of the revised North American Free Trade Agreement and the easing of U.S.-Canada trade tensions, said Calum Mackenzie, Aon Hewitt practice director, Canada investment consulting, in the report. "However, a host of other risks — from a slowing China to tighter financial conditions — remain in play, so the calm might not last for long."