TORONTO, April 4, 2022 /PRNewswire/ — Aon plc (NYSE: AON), a leading global professional services firm, today announced that the aggregate funded ratio of Canadian pension plans in the S&P/TSX Composite Index has increased from 96.9% to 100.5% over the past three months, according to Aon Pension Risk Tracker.
The Aon Pension Risk Tracker calculates the overall funded position on an accounting basis for S&P/TSX Composite Index companies with defined benefit (DB) plans. To access Aon’s interactive tracker, which dates back to 2013, click here. The tool uses Aon’s Risk Analyzer platform, which allows plan sponsors to track the funded status of their individual plan on a daily basis. Versions of the Pension Risk Tracker are also available for the S&P 500 in the US and for a number of indices in the UK; switch to this platform in Canada allows Aon to have a global view of the funded status of pension plans.
Key findings from the first quarter of 2022 include:
Pension assets lost 7.2% in the first quarter of 2022.
The long-term government of Canada the bond yield increased by 69 basis points (bps) compared to the previous quarter-end rate, and credit spreads widened by 25 basis points. This combination resulted in an increase in the interest rates used to value pension liabilities from 2.77% to 3.71%. Given the majority of plans in Canada are still exposed to interest rate risk, the decrease in the pension plan liability caused by the increase in interest rates has offset the negative effect of the return on assets on the funded status of the plans.
“There has been considerable volatility over the past quarter and mounting inflationary pressures have impacted markets,” said Nathan LaPierre, Partner, Wealth Solutions, Aon. “Nevertheless, rising nominal interest rates have likely had a positive impact on pension plan funding. Plan sponsors should consider taking steps to lock in the gains they have recently made by reducing the risk of regimes through asset mix or liability settlement opportunities, preparing them for future volatility.”
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