The median funding ratio of Canadian pension plans rose to 99% as of Sept. 30, as equity markets continued to show improvement for the second straight quarter, according to a survey from Aon.
Aon's Median Solvency Ratio rose 3.6 percentage points from 95.4% as of June 30, a news release reporting the survey results said Thursday. The median funding ratio had dropped to 89.1% as of March 31 due to the economic impact of the COVID-19 pandemic.
The median asset return for the third quarter was 2.5%, while the Canadian 10-year benchmark bond yield rose by 5 basis points and long bond yields increased by 12 basis points, increasing pension liabilities by 1.2%.
Median asset returns were 11.5% in the second quarter.
According to the survey, all equity indexes increased during the third quarter, while alternative asset class returns showed some divergence, the news release said.
While global infrastructure fell 0.6% in the second quarter (compared with a 2.7% loss the prior quarter), global real estate rose by 0.1% (compared with its 5.3% gain in the quarter ended June 30).
"The rebound has been pretty remarkable since the end of the first quarter, and we're almost back to fully funded status," said William da Silva, Canadian practice director, retirement consulting at Aon, in the news release. The median funding ratio had been 102.5% as of Dec. 31.
"The big difference is that interest rates are down and much of the improvement has been based on return-seeking asset returns," Mr. da Silva said. "If these change, we could be back to funded levels seen at the beginning of the year. There is still an opportunity to reduce or eliminate risk and prepare for a potential downturn."