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Pension Indices: January 2022

Pension Indices: January 2022

February 7, 2022

The Pension Indices by LifeWorks, released monthly, condense the journey that pension plans have experienced during the year into a few key statistics. More importantly, they also provide an early indicator of the challenges and opportunities that are yet to come for plan sponsors and administrators to help with the monitoring and management of their pension plans.

Highlights:

  • The funded position of a typical pension plan decreased on a solvency basis but increased on an accounting basis over the month of January, reflecting the offsetting effects of negative investment returns and increases in bond yields during the month.

  • In January, investment returns were negative, with a typical pension plan achieving a return of approximately -3.6%. Canadian as well as foreign equity markets pulled back as worries about inflation, the winding down of monetary stimulus from central banks and the risk of conflict in Ukraine increased. Returns for Canadian bond indices were also negative as yields increased by 0.30% to 0.50%. Corporate credit spreads increased by approximately 0.10% to 0.15% during the month.

  • Market expectations for long-term inflation decreased by approximately 0.10% over the period. Non-indexed 30-year Government of Canada bond yields increased by 0.37%, while the equivalent but indexed bond yield increased by 0.47%.

  • The accounting pension expense index shows thus far a 15.5% reduction in next year’s pension expense, largely driven by bond yield increases in January.