Poor federal bond yields and stock market performance contribute to plan losses
Jittery stock markets and drops in federal bond yields hurt Canadian pension plans in the second quarter of 2010, according to the latest Mercer Pension Health Index.
The index, which shows the ratio of assets to liabilities for a model pension plan, fell seven per cent in the second quarter to hit 67 per cent on June 30.
"Long-term federal bond yields dropped 40 basis points, ending the quarter at their lowest level since the ‘flight to quality’ of December 2008," said Scott Clausen, retirement, risk and finance professional leader for Canada at Mercer.
"This resulted in higher pension liabilities measured on a solvency basis, decreasing the index by about five per cent."
Poor stock market performance is responsible for the remainder of the decline, with equity indices in Canada, the United States and internationally losing between five and ten per cent over the quarter, said Yvan Breton, leader of Mercer’s investment consulting business in Canada.
A typical balanced portfolio would have seen a loss of 1.4 per cent for the first half of 2010, and a 2.7-per-cent loss for the quarter. This return does not capture any impact from active management of any of the assets.