Stock gains boost Canadian pensions in 2017, Mercer says

Canadian defined benefit pension plans that it tracks were fully funded, or very close to fully funded, at the end of the year.

It says defined benefit plans were helped by surging stock markets, particularly in the fourth quarter.

However, a decline in long-term interest rates offset some of the gains in equities.

According to Mercer estimates, a typical balanced pension portfolio with a combination of equity and fixed-income investments would have returned 5.3 per cent in the fourth quarter of 2017.

Mercer says the median solvency ratio for its 604 pension clients in Canada was 97 per cent — meaning half of the pension plans had enough assets to cover at least 97 per cent of their obligations.

That’s an improvement from the end of 2016, when the median solvency ratio for Mercer clients was 93 per cent.

Defined benefit plans have become less common in recent years because of the cost and the financial risk they pose to employers if investments perform poorly.

To address the risk, many employers have opted for other retirement options, and two provinces — Quebec and Ontario — have moved to relax the regulations for defined benefit plans operating under their jurisdiction. While the market helped defined benefit plans, a decline in long-term interest rates offset some of the gains