TORONTO, Jan. 3, 2023 /CNW/ -- Aon plc (NYSE: AON), a leading global professional services firm, announced today that the aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite Index increased from 96.9 percent to 100.8 percent during the past 12 months, according to the Aon Pension Risk Tracker. It was at 98.7 percent at the end of Q3.
The Aon Pension Risk Tracker calculates the aggregate funded position on an accounting basis for companies in the S&P/TSX Composite Index with defined benefit (DB) plans. To access Aon's interactive tracker, which dates to 2013, click here. The tool uses Aon's Risk Analyzer platform, which allows plan sponsors to track their individual plan's funded status daily. Versions of the pension tracker are also available for the S&P 500 in the U.S. and for other indices in the UK.
Key findings for the year ending Dec. 31, 2022 include:
- Pension assets lost 15.6 percent over the year 2022.
- The long-term Government of Canada bond yield increased 160 basis points (bps) relative to the last year-end rate, and credit spreads widened by 45 bps. This combination resulted in an increase in the interest rates used to value pension liabilities from 2.77 percent to 4.82 percent. Given that most plans in Canada are still exposed to interest rate risk, the decrease in pension liability caused by increasing interest rates offset the negative effect of asset returns on the funded status of the plans.
"Asset performance was poor in 2022. The poor asset performance was offset by a substantial increase in interest rates and therefore a decrease in liabilities," said Nathan LaPierre, partner, Wealth Solutions, Aon. "Many pension plans will be starting 2023 in a very good financial position. Plans sponsors can use this favorable position to reduce risk in their asset allocations or through pension risk transfer activities."
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