(January 24, 2012) — Canadian pension funds’ investments ended 2011 barely in positive territory after surviving a turbulent year, according to a newly released survey by global custodian RBC Dexia Investor Services.
Despite the slight returns, pension funds still suffered a decline in their funded status in 2011 as a result of declining long-term bond yields that drove up liabilities.
Canadian pension plans earned just 0.5% for the year ended December 31, 2011 according to the firm, which administers $340 billion of Canadian pension plans and money managers. “It’s been a tumultuous year for global markets,” said Don McDougall, Director of Advisory Services for RBC Dexia. “We had a natural disaster in Japan, geopolitical tensions in the Middle East, a stubborn US recovery with its ensuing political backlash, sputtering Chinese growth and the ever lingering European debt crisis – most pensions will be pleased it’s over.”
The survey revealed that the Canadian pension plans within the universe reported they earned 4.2% on their investments in the fourth quarter last year.
According to RBC Dexia, Canadian equities were their hardest-hit asset class, with mining, energy and financial services attributing to the majority of the market’s decline in Canada in 2011.
Canada is not alone in struggling with achieving gains amid turbulent market conditions. According to recent results from Mercer, the Canadian pension system still trumps that of the United States. According to the latest Melbourne Mercer Global Pension Index — which includes 16 countries and 50% of the world population — the Netherlands, Australia, and Switzerland hold the top three spots in the ranking, while Canada ranks in 5th place and the US ranks in 10th place. The sustainability of the US retirement system is at risk, Mercer concluded, due to a drop in asset values and a rise in government debt. According to the 2011 Melbourne Mercer Global Pension Index, the US system requires further reform to withstand the pressures of its aging population.
The following list summarizes Mercer’s results in order of strongest to weakest pension systems: 1) Netherlands, 2) Australia, 3) Switzerland, 4) Sweden, 5) Canada, 6) UK, 7) Chile, 8) Poland, 9) Brazil, 10) United States, 11) Singapore, 12) France, 13) Germany, 14) Japan, 15) India, and 16) China.
The report stated: “The best pension systems adopt a multi-pillar approach to spread these long term risks between governments, employers and individuals. Such an approach is also particularly relevant in periods of economic uncertainty, as we are now facing,” said Mercer Senior Partner and author of the report, Dr. David Knox, adding that in uncertain economic times, the risk of governments not being able to financially support their aging population is becoming more of a reality unless some significant and immediate pension reform is made.