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Canadian defined benefit (DB) pension plans posted an annual return of 9.7% last year, according to RBC Investor & Treasury Services.

An RBC Investor & Treasury Services poll of plan sponsors shows their median funded status stands at 96%. The poll reveals that nearly 25% of respondents report levels in excess of 100%, and only 5% with funded levels lower than 70%.

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Further, 87% of respondents remain confident they can meet their ongoing pension liabilities, which should be good news for the longevity of Canadian DB pension plans.

“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 for Canada at RBC Investor & Treasury Services, in a release. “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.

“Meanwhile, global equities continued to provide strong and stable returns. Fund managers will continue to pay close attention to these strong global returns and geopolitical developments to maintain a diversified portfolio across asset sectors and classes in the year ahead.”

More details

Continuing low interest rates, an uptick in the global economy, recovering emerging markets and improving labour markets helped fuel 2017 global equity returns, adds the firm.

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While the Canadian economy was a strong performer in 2017, and the Bank of Canada interest rate hike in September of 2017 boosted financial stocks in Q4, the energy sector weighed down year-over-year returns on the TSX. In 2016, however, Canada’s three largest sectors—energy, materials and financial services—posted strong results, helping lift returns.

The poll also found that 40% of respondents identified low interest rates as their main concern in the year ahead.

In 2017, Canadian bond yields rose across most of the curve while the Bank of Canada’s interest rate hikes in July and September led to a flatter yield curve when compared to the start of the year.

About the poll: The results provide the perspectives of more than 100 defined benefit pension plans from across Canada on the issues and trends influencing this important sector.

Originally published on Advisor.ca
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