Survey shows pension plans deficits almost unchanged despite market surge
Despite improving financial markets in the second quarter of 2003, Canadian pension plans are not faring much better than they were at the beginning of April, according to a survey by Mercer Investment Consulting.
“The second quarter was better all around, particularly in equity markets, with large cap and small cap, value and growth, performing well,” said Marcel Larochelle, practice leader for Mercer Investment Consulting. “Unfortunately, pension fund liabilities have risen in parallel with the assets because of the falling long-term interest rates. Therefore, deficits remain as large as they were at the start of the quarter.”
Mercer’s Canadian Pension Health Index, a measure of the impact of capital markets on the financial position of Canadian pension plans, remained at 82 per cent since March and was down 11 percentage points from 93 per cent at the same time last year.
“Managers of discretionary pooled funds posted a solid return of 7.4 per cent during the second quarter, the best result since the last quarter of 2001, for a median return of 2.5 per cent after six months,” said Larochelle.
Other results from the survey
•In most of the main asset classes, the median pension fund manager underperformed the leading index.
•One of the better performing asset classes was Canadian equities, as shown by the return of the S&P/TSX index of 10.6 per cent. Within Canadian equities, all sectors posted positive returns and the best performing ones were IT and telecommunications. The median Canadian equity manager underperformed the index with a return of 10 per cent.
•International equities were just behind Canadian equities, returning 10.4 per cent. The median international equity manager underperformed the index by 0.7 per cent, returning 9.7 per cent.
“The second quarter was better all around, particularly in equity markets, with large cap and small cap, value and growth, performing well,” said Marcel Larochelle, practice leader for Mercer Investment Consulting. “Unfortunately, pension fund liabilities have risen in parallel with the assets because of the falling long-term interest rates. Therefore, deficits remain as large as they were at the start of the quarter.”
Mercer’s Canadian Pension Health Index, a measure of the impact of capital markets on the financial position of Canadian pension plans, remained at 82 per cent since March and was down 11 percentage points from 93 per cent at the same time last year.
“Managers of discretionary pooled funds posted a solid return of 7.4 per cent during the second quarter, the best result since the last quarter of 2001, for a median return of 2.5 per cent after six months,” said Larochelle.
Other results from the survey
•In most of the main asset classes, the median pension fund manager underperformed the leading index.
•One of the better performing asset classes was Canadian equities, as shown by the return of the S&P/TSX index of 10.6 per cent. Within Canadian equities, all sectors posted positive returns and the best performing ones were IT and telecommunications. The median Canadian equity manager underperformed the index with a return of 10 per cent.
•International equities were just behind Canadian equities, returning 10.4 per cent. The median international equity manager underperformed the index by 0.7 per cent, returning 9.7 per cent.
