The solvency position of Canadian pension plans improved slightly in the second quarter of 2014. The Mercer Pension Health Index stands at 105% on
Many plan sponsors were expecting interest rates to continue moving upwards in 2014, and further improve the funded position of pension plans. In fact, the reverse has happened with long-term interest rates falling by more than 40 basis points during the year. Once again, it shows that pension plans remain largely exposed to significant and unpredictable volatility of interest rates.
The financial position of pension plans remains healthy and it continues to be a good opportunity for plan sponsors to measure and, if necessary, adjust their risk exposure to their desired level. For many, this means reducing their risk exposure by increasing fixed income allocations or by offloading portions of their liabilities to an insurance company through an annuity transaction said
The current positive pension situation could deteriorate quickly, particularly if equity markets falter or there is continued downward pressure on long-term interest rates. Consequently, there could be a significant early mover advantage for plan sponsors who are able to act quickly.
Despite downward revisions of their economic growth forecast for 2014 by both the Bank of
On the bond side, a number of factors were responsible for falling yields since the start of the year, including core inflation staying below the Bank of
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