The PBI Canadian Pension Solvency Index illustrates the development of solvency positions for a sample pension plan.
Canada’s GDP rose an annualized 3.7% during the first quarter of the year with strong growth in consumption, residential construction, inventories and fixed investment, which outweighed negative net exports. Canada continues to lead the G7 countries in GDP growth since the 2008 credit crisis as Canada’s recovery continues, with growth broadening across regions and sectors. As the economy approaches full capacity, the Bank of Canada (BoC) has been more optimistic in its outlook, causing it to raise interest rates from 0.50% to 0.75%, which was expected by the market. The BoC now expects economic growth to be 2.8% for 2017 (up from 2.6% in April and 2.1% in January), 2.0% for 2018 (from 1.9%) and 1.6% for 2019 (from 1.9%). On the other hand, the BoC cut its inflation forecast to 1.6% for 2017 (from 1.9%) and 1.8% in 2018 (from 2.0%). Any future rate hikes will be guided by incoming data and are expected to be gradual over the next couple of years
Since the end of 2013, gains made in a typical pension plan’s solvency have been eroded by the combination of lower yields, lower capital market returns and the adoption of the CPM 2014 mortality table. Since reaching a cycle high of 108% funded status in March 2014, the Pension Solvency Index declined in almost every successive quarter to a low of 87% funded status in February 2016. Since then, pension plans’ funded ratios have improved once again, beginning a reversal of the erosion experienced since 2014. At the end of June 2017, the PBI Canadian Pension Solvency Index has risen to 98%, up from 90% where it was a year ago.
Download the PDF: