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Canadian defined benefit pension plans' financial health improves in 2021: Aon Pension Risk Tracker

TORONTO, Jan. 4, 2022 /PRNewswire/ -- Aon plc (NYSE: AON), a leading global professional services firm, today announced that the aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite Index increased from 89.4 percent to 97.2 percent during the past 12 months, according to the Aon Pension Risk Tracker.

The Aon Pension Risk Tracker calculates the aggregate funded position on an accounting basis for the companies in the S&P/TSX Composite Index 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 their individual plan's funded status on a daily basis. Versions of the Pension Risk Tracker are also available for the S&P 500 in the U.S. and for a number of indices in the UK.

Additional key findings:

  • Pension assets returned 7.0 percent in 2021 and were positive in Q4, ending the quarter up 4.8 percent.
  • The year-end long-term Government of Canada bond yield increased 51 basis points (bps) relative to the last year-end rate, and credit spreads narrowed slightly by 3 bps. This combination resulted in an increase in the interest rates used to value pension liabilities from 2.34 percent to 2.82 percent. This increase in interest rates, along with significant asset returns, significantly improved the funded position of pension plans in Canada.

"2021 was a spectacular year for Canadian pension plans funding, with both interest rates and risk-seeking assets going up," said Erwan Pirou, Canada Chief Investment Officer, Wealth Solutions, Aon. "But with inflation reaching record highs in North America, they will be watching closely if central banks deliver on the expected rate hikes in the next few months and how meaningful they will be. Longer-term, ensuring the sustainability of plan assets to climate change is becoming a more pressing issue as well."

"While the emergence of the Omicron variant added significant uncertainty at the end of 2021, equity markets continued the upward trajectory that had been established throughout the year," said Nathan LaPierre, Partner, Wealth Solutions, Aon. "Plan sponsors are likely to use the significantly-improved funded positions to undertake de-risking activities and protect those funded positions in 2022."

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