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Canadian defined benefit pension plans' financial health steady in Q2 2022: Aon

 TORONTO, July 4, 2022 /PRNewswire/ -- Aon plc (NYSE: AON), a leading global professional services firm, announced today that the aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite Index increased from 100.5 to 101.5 percent during the past three months, according to the Aon Pension Risk Tracker. It was at 96.9 percent at the beginning of the year.

The Aon Pension Risk Tracker calculates the aggregate funded position on an accounting basis for 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; moving to this platform in Canada allows Aon to take a global view of pension plan funded status.

Key findings in Q2 2022 include:

  • Pension assets lost 11.9 percent over the second quarter of 2022.
  • The long-term Government of Canada bond yield increase 77 basis points (bps) relative to the last quarter-end rate, and credit spreads widened by 38 bps. This combination resulted in an increase in the interest rates used to value pension liabilities from 3.78% to 4.93%. Given a majority of the plans in Canada are still exposed to interest rate risk, the decrease in pension liability caused by increasing interest rates offset the negative effect of asset returns on the funded status of the plans. However, given the volatility, individual pension plans' results will vary significantly depending on asset allocation.

"The rapid rise of interest rates has lowered liabilities, offsetting the poor asset performance over the quarter," said Nathan LaPierre, partner, Wealth Solutions, Aon. "Plan sponsors are likely to continue de-risking activities to further protect plans' funded positions as they navigate volatility, be it through strengthening interest rate hedges or risk transfer activities such as buy-ins and buy-outs."

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