Strong stock market returns help pension plan health in Q1: Aon Hewitt

TORONTO – The health of Canadian pension plans continued to improve in the first quarter, boosted by strong stock market returns, according to a survey by Aon Hewitt.

The survey of more than 275 Aon Hewitt administered plans found a median solvency funded ratio of 95.4 per cent at March 27, up two percentage points from the end of last year and 21 percentage points higher than a year ago.

The firm said approximately 36 per cent of the surveyed plans were more than fully funded at the end of the quarter, compared with 26 per cent at the end of 2013 and three per cent at the end of the first quarter last year.

Aon Hewitt said the main driver for the improvement was strong North American stock markets, with Canadian stocks returning 4.9 per cent and U.S. stocks returning 4.6 per cent.

The returns helped offset declining yields in benchmark bonds and continuing weakness in emerging markets, the firm said.

The health of Canadian defined benefit pension plans have been improving generally over the past year on the back of strong stock markets and rising interest rates, which are used to calculate plan liabilities.

Pension plans saw their liabilities skyrocket when interest rates plunged following the financial crisis, however rising benchmark bond yields have help reduce those same liabilities and improve the financial position of many plans.