Pension Indices: May 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 May, the funded position of a typical pension plan improved on a solvency basis, but remained essentially unchanged on an accounting basis.
• The investment return was -0.4% for the month for a representative pension plan portfolio. The Canadian equity index finished the month with a return of 0.1%. Also, returns for Canadian bond indices were slightly negative as yields increased slightly in general along the curve.
• Corporate credit spreads also saw a slight increase, especially for bonds with short terms to maturity.
• The yield curve remained relatively flat as both short-term Government of Canada bond yields as well as 30-year term Government of Canada bond yields increased by a few basis points. Market expectations for long-term inflation (the break-even inflation rate) were approximately 1.76% at the end of May, which represents a 0.12% decrease from the end of April.
• The accounting pension expense index saw a slight drop in May, as the accounting discount rate increased, and continues to indicate a significant anticipated decrease in next year’s pension expense.