The pension remake a health

Les régimes de retraite se refont une santé

Photo: Miguel Medina Agence France-Presse
The markets have been stimulated by the stimulus measures of governments, the intervention powerful central banks, the gradual release of the containment measures, and by the advances in the development of potential vaccines.

Plans defined benefit pension plans have returned to financial health, the time of a rebound of stock markets in a context of a pandemic. The uncertainty only persists for not less nourished by the decoupling between a scenario in which V retained by the markets, and in U that seems to adopt the so-called real economy, and the weakness of bond yields.

The Mercer index of the financial health of pension plans, which measure the solvency ratio of a pension plan is a defined benefit hypothetical, is increased from 93 % at the end of march to 101% at the end of June. For its part, the solvency ratio of the median pension of the firm’s clients, specializing in human resources was 91 % at June 30, compared with 84% at 31 march.

Mercer points out that in the second quarter, funding levels of defined benefit pension plans have recovered a little less than half of the losses incurred in the first quarter. “We should this improvement to yields higher than 10 % widely available on the equity markets in the last quarter, and this, in spite of the decline in long-term bonds which has led to increased actuarial liabilities. “And F. Hubert Tremblay, senior advisor within the field Assets of Mercer Canada, added :” In spite of the difficulties of the last few months, most of the pension plans, defined benefit plans have emerged fairly well from the worst of the crisis. “The performance of a typical balanced portfolio would have returned an exceptionally strong 13 % in the second quarter.

101%

This is the Mercer index of the financial health of pension plans at the end of June, which measures the solvency ratio of a pension plan is a defined benefit hypothetical

Caution and defensive, however, remain the order of the day, the time lag between the rebound in the stock market and the economic recovery is feeding a certain skepticism. “Although economic activity continues to be heavily slowed down by the pandemic, the equity markets have nearly recovered to their levels at the beginning of the year, and their courses seem to draw a curve of “V-shaped recovery”. In contrast, the yields of long-term bonds are reaching ever new lows, which suggests that subdued growth and inflation soft. “

Risks remain

By doing so, “risks serious and imminent threaten the defined-benefit plans,” added Mr. Tremblay. The equity markets have taken the lead on the real economy, which makes them extremely vulnerable to the pitfalls of a weak economic recovery, the persistent virus, or delay in the development of an effective vaccine. “

His colleague Todd Nelson chimed in. The markets have been stimulated by the stimulus measures of governments, the intervention powerful central banks, the gradual release of the containment measures, and by the advances in the development of potential vaccines. “However, escalations of recent the number of cases in the United States and in other countries fuelled fears of a second wave of COVID-19. “

The firm retains the closed regimes, and without funding problem have any interest to play it safe by increasing the weighting of defensive assets, diversifying to dilute the importance of the actions or stimulating the annuity purchase. As for the plans with a long-term horizon, ” a bumpy road ahead. Given the thinness of bond yields, they will rather continue to invest in assets for growth in order to remain affordable. However, a weight marked in the assets of growth will make them more sensitive to the volatility of the markets. “

Market Performance

In the second quarter, the composite index S&P/TSX composite index has gained 17 % and 10 out of 11 sectors registered positive returns, one of the technologies of the information arriving in the head. For their part, long-term bonds have a quarterly performance above 10 % due to the fall in bond rates.

At international level, the u.s. equity market has risen at the head of the pack, posting a return of 20.5 % in us dollars (by 15.3% in canadian dollars), compared with 12.8% in local currency (10.1% in canadian dollars) for international equities.

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