Positive economic indicators suggest a bright outlook for pension plan members
New reports from TELUS Health offer encouraging news for Canadian pension plans and their beneficiaries. Both the Pension Indices and Performance Universe reports indicated positive investment returns and increased stability in the third quarter of 2024. A news release highlighted this suggests a promising outlook for the financial security of employees and retirees, as well as for the Canadian economy as a whole.
The Pension Indices report revealed that the solvency funded status of a typical employer-provided pension plan remained stable throughout Q3. This stability is crucial for plan administrators, allowing them to adapt their risk management strategies in line with new guidelines from the Canadian Association of Pension Supervisory Authorities (CAPSA).
“When individuals are confident in their future financial security, especially when it comes to long-term retirement planning, they are more likely to spend money and stimulate economic growth,” says Philip Mullen, vice president of employer solutions consulting at TELUS Health. “Reliable pension plans can also lead to more stable investment strategies that contribute to overall market stability. Additionally, they have labour market effects that can impact retirement planning, employee retention and job satisfaction – all important contributors to individual financial wellness.”
While solvency held steady in Q3, the first nine months of 2024 saw an 8% improvement in the funded ratio of a typical pension plan, largely fueled by strong equity market performance, TELUS Health noted.
The Performance Universe report, which analyzes the performance of pooled pension funds managed by Canadian investment firms, found a median return of 6.2% before management fees in Q3, and 13.3% since the beginning of the year. Although these returns are positive, they fell slightly short of benchmark portfolio returns.
Key highlights from the Performance Universe report include:
- Strong equity market performance: The S&P/TSX Composite Index gained 10.5% in Q3, while the MSCI World Index, S&P 500, and Emerging Markets Index rose by 5.0%, 4.4%, and 7.3% respectively (in Canadian dollars).
- Steady bond market growth: The Canadian bond market showed a 4.7% increase.
The reports emphasized that while pension plans are currently in a strong position, ongoing market volatility necessitates a focus on risk management. The high solvency ratios provide an opportunity for plan administrators to adjust their strategies to meet the new CAPSA guidelines, which cover areas like cybersecurity, investment governance, and ESG policies.
TELUS Health encourages pension plan administrators to proactively review their risk management frameworks while plans are well-funded, as managing risks is more cost-effective under these conditions.
