Defined-benefit pensions can withstand possible Omicron challenges, reports say

The pension plans were well-funded in 2021 despite an uncertain end to the year, a report by consulting firm Mercer found.

Canadian defined-benefit pension plans are in stronger positions to withstand the potential challenges ahead from the Omicron variant after performing well in 2021, a pair of industry reports say.

A report by consulting firm Mercer found that the pension plans were well-funded despite an uncertain end to the year.

The median solvency ratio of defined-benefit (DB) pension plans within Mercer’s database was 103 per cent at year-end, up two per cent from Sept. 30 and seven per cent higher than a year earlier.

Sixty-one per cent of pension plans were in surplus position at the end of the fourth quarter, compared with 53 per cent at the end of the third quarter. In addition 27 per cent were estimated to have solvency ratios between 90 and 100 per cent; seven per cent were estimated between 80 and 90 per cent; and five per cent were estimated at less than 80 per cent.

“As DB plans’ financial positions continue to improve, many plan sponsors are now finding themselves in the enviable position of having DB surpluses,” said Ben Ukonga, principal and leader of Mercer’s wealth business in Calgary in a news release.

Pension performances last year were aided by the reopening of the global economy, increases in vaccination rates and availability of vaccines.

Significant headwinds this year could come from the latest variant of COVID-19, the potential emergence of new variants, availability of vaccines in developing countries, increasing geopolitical tensions, U.S. political gridlock and the uncertainty of the U.S. midterm elections, the Mercer report said.

Additional concerns include high inflation and policy responses from central banks, along with wage increase pressures in response to turnovers and job vacancy rates.