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The solvency of the pension plan in 2017 : one of the best since 10 years


Alain Thériault

8 January 2018 11:30

Photo : Freepik

The indices of financial health of pension plans of the firms of actuaries Aon Hewitt and Mercer suggest that the solvency median of the pension plans in Canada approached the bar to 100% in 2017, driven by the booming stock markets in the fourth quarter.

According to Aon Hewitt, the financial health of pension plans defined benefit canadians has reached levels not seen for more than a decade. The solvency of the plans in the fourth quarter of 2017 has maintained the trend, adds to the actuarial firm, in its latest quarterly survey on the solvency ratio of the median, which amounted to 99.2 % at the end of the fourth quarter.

The Mercer index of the financial health of the pension schemes is set to 106 % to 29 December, up from 102 % in the beginning of the year, says the society of actuaries. Its solvency ratio to median of the pension plans has reached 97 % at the end of the year, an increase compared to the rate 93 % in 2016.

Plans in health

The year 2017 has been positive, so that a large number of plans are fully funded or close to being. «The funding of the pension plan canadian defined benefit is better today than it has been during the better part of the last decade,» says F. Hubert Tremblay, senior adviser of the domain holdings at Mercer.

According to Aon, nearly a plan in two (47 %) was fully funded at January 1,. The firm, however, indicates that this level is down compared to the third quarter of 2017.

2018 looks well

The solvency of pension plans has mainly benefited the stock markets booming, especially in the fourth quarter, » adds Mercer. However, this increase was curbed by the decline in interest rates over the long term, which are a determining factor in the solvency of the plans. According to Mercer, they have lost 30 basis points in the fourth quarter, a net decrease of 10 basis points for the full year.

For its part, Aon believes that the financial soundness of the plans puts them in a good position for the management of liabilities in 2018. «Pension plans starting in 2018, on a solid foundation,» says Claude Lockhead, partner and executive director of the convenient retirement of the East region at Aon Hewitt. With a solvency close to 100 %, it seems very clear that plan sponsors are considering another year is manageable in terms of capitalization, and that 2018 was also announced as a good year for the regulations, while one of the main obstacles to the settlement of liabilities — release of funds — is now of less concern. «

Mercer encourages plan sponsors to not to be fooled by a false sense of security. The firm said increasingly question the ability of stock markets to continue to generate returns as strong after a prolonged period of bull market. It is observed that the interest rate increase, long-planned has not yet materialized, and that the geopolitical tensions on multiple fronts, have fueled the uncertainty on the markets.

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