Canadian DB Pensions Rise 4.4% in Q4, 9.7% for 2017

Low interest rates, and a rising global economy boosted returns.

Canadian defined benefit pension plans returned 4.4% in the fourth quarter of 2017, and 9.7% for the year, as low interest rates, a rising global economy, recovering emerging markets, and improving labor markets helped boost global equity returns, according to the RBC Investor & Treasury Services All-Plan Universe.

“2017 was a strong year for Canadian pension plans, with year-over-year returns, despite a backdrop of ongoing global economic and political volatility,” said James Rausch, head of client coverage, Canada, RBC Investor & Treasury Services. “The Bank of Canada rate hikes, the first in seven years, reverberated through the bond market, while the energy and commodity sectors continued to fluctuate and impact Canadian markets.”

The fourth quarter was by far the year’s strongest quarter, , with a return of 4.4%, which was up sharply from the previous quarter’s meager 0.4%, as well as the same quarter the previous year, when Canadian defined benefit plans returned just 0.5%.

RBC Investor & Treasury Services also said that the median funded status of Canadian defined benefit pension plan sponsors is 96%, according to a poll it conducted. The poll found that nearly 25% of respondents reported funded levels over 100%, while only 5% reported funded levels of less than 70%. Additionally, 87% said they are confident they can meet their ongoing pension liabilities, and 40% said low interest rates were their main concern in 2018.

Although a strong Canadian economy in 2017, and an interest rate hike by the Bank of Canada in September helped fuel financial stocks in the fourth quarter, the energy sector weighed down year-over-year returns on the TSX, said RBC. This is in contrast to 2016, when the energy, materials, and financial services, posted strong results.

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