Canadian pension returns down 14.5% in first half

Canadian defined-benefit (DB) pension plans experienced a double-digit negative return during the first six months of 2022, Northern Trust Corp. said in a recent report.

The median Canadian DB pension plan contracted by 8.8% during the second quarter of 2022 and by 14.5% during the first six months, according to the Northern Trust Canada Universe, which tracks the performance of Canadian institutional DB plans that subscribe to Northern Trust performance measurement services.

During the second quarter, the S&P/TSX Composite Index fell 13.2%. In Canadian-dollar terms, the S&P 500 dropped 13.4%, while the MSCI EAFE and MSCI Emerging Markets indexes dropped 11.5% and 8.4% respectively, Northern Trust said. Meanwhile the FTSE Canada Universe Bond index dropped 5.7% in Q2.

“Provincial bonds witnessed the largest decline, followed by corporates and federals,” Chicago-based Northern Trust said in a press release July 25.

“Although rising interest rates create market uncertainty causing a decline in pension assets, higher rates improve pension funding ratios and the overall financial health of pension plans, serving as a cushion through this volatile period,” Northern Trust Canada president and CEO Katie Pries said in a release.

Mercer Canada reported earlier this month that rising yields boosted the solvency of Canadian DB plans in the second quarter, even as investments took a hit.

All sectors of the S&P/TSX Composite were in negative territory during Q2, with the health care, information technology and materials sectors posting the weakest returns, Northern Trust said. Within the S&P 500, the consumer discretionary sector posted the largest decline.

“The second quarter of 2022 proved to be a tumultuous period for the financial markets. As supply chains found pockets of recovery, a lingering backdrop of tight labour markets, higher wages and soaring food and energy prices continued to stoke inflation, driving it to decade highs around the globe,” Northern Trust said in a release.