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Canadian defined benefit pension plans' financial health declines slightly in Q3 2022: Aon

TORONTO Oct. 3, 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 decreased from 100.5 to 97.2 percent during the past three months, according to the Aon Pension Risk Tracker. It was at 96.9 percent when the year 2022 started.

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.

Key findings in Q3 2022 include:

  • Pension assets lost 0.1 percent over the third quarter of 2022.
  • The long-term Government of Canada bond yield decreased 5 basis points (bps) relative to the last quarter-end rate, and credit spreads narrowed by 16 bps. This combination resulted in a decrease in the interest rates used to value pension liabilities from 4.83% to 4.62%. Since most pension plans are still exposed to interest rate risk, pension liabilities increased more than assets due to the the reduction in the discount rate.

"The small reduction in discount rates, coupled with poor return-seeking asset performance over the quarter, reversed some of the increase in funded positions over the previous two quarters," said Nathan LaPierre, partner, Wealth Solutions, Aon. "Funded positions are slightly better than at the beginning of the year. Plan sponsors should carefully consider de-risking activities as they seek to make better decisions that help maintain those funded positions through the significant volatility we're currently experiencing."

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