Pension Indices: July 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:

• Over the month of July, the funded position of a typical pension plan improved on a solvency basis, but slightly declined on an accounting basis.
• The investment return was 5.4% for the month for a representative pension plan portfolio. However, this reflects only a partial recovery in the return for the year, as the return for the first seven months of the year for the plan was -10.8%.
• The Canadian equity index finished the month with a strong return of 4.7%. Also, returns for Canadian bond indices were positive as yields decreased, especially for bonds with median and long durations. Long-term Government of Canada bond yields decreased by approximately 0.37% during the month but were still 1.09% higher at the end of July 2022 compared to year-end 2021.
• Market expectations for long-term inflation(the break-even inflation rate) were approximately 1.84% at the end of July, which represents a 0.06% increase from the end of June.
• The accounting pension expense index saw an increase in July, as the accounting discount rate decreased, but is still well below the expense index at the beginning of the year.