Pension Indices: June 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 June, the funded position of a typical pension plan declined on both solvency and accounting bases.
• The investment return was -5.4% for the month for a representative pension plan portfolio. The Canadian equity index finished the month with a weak return of -8.7%. Also, returns for Canadian bond indices were negative as yields increased significantly, especially for bonds with short durations. Short-term Government of Canada bond yields increased by approximately 0.47% compared to an increase of 0.29% for long-term Government of Canada bond yields.
• Corporate credit spreads also saw a slight increase for bonds with short terms and median terms to maturity.
• Market expectations for long-term inflation (the break-even inflation rate) were approximately 1.78% at the end of June, which represents a 0.02% increase from the end of May.
• The accounting pension expense index saw a drop in June, as the accounting discount rate increased, and continues to indicate a significant anticipated decrease in next year’s pension expense.