“Hard-Hitting Losses”: Canadian Defined Benefit Pension Plans Had A Rough 2022

According to the survey from RBC Investor & Treasury Services (I&TS), this was the worst year for Canadian defined benefit pension plans since the 2008 global financial crisis.

Canadian pension plans had a rough 2022, experiencing “hard-hitting losses” according to the RBC Investor & Treasury Services survey.

The average annual median return was -10.3%, the worst year since the 2008 global financial crisis when the average annual median return was -15.9%.

Pension plans also experienced the worst fixed income decline in decades:

“Canadian pensions had their largest annual fixed income decline in more than 30 years, losing 16.8% over the 12-month period, compared to the -11.7% return for the FTSE Canada Bond Index. As central banks enacted restrictive monetary policy to tame surging inflation, yields rapidly rose across the spectrum. The weakness spread across the market, but inflation-sensitive, longer-duration bonds were the most affected. The FTSE Canada Long Overall Bond Index declined 21.8%, while FTSE Canada Short Overall Bonds were down 4.0%.”

While the value of pension assets rose 3.8% in Q4 of 2022, heavy losses in Q1 and Q2 meant there was still a significant decline on the year.

Niki Zaphiratos, Managing Director, Asset Owners, for RBC Investor & Treasury Services notes there will be much for pension asset managers to grapple with as the year unfolds:

“It was a challenging year for pension asset managers,” noted Zaphiratos. “Both equities and fixed income asset classes, which typically offset each other, experienced losses. However, the rapid rise in bond yields resulted in the lowering of pension liabilities – and most pensions ended the quarter in a better position.”

Zaphiratos continued: “In the next few months, plan sponsors will need to be attentive to risk factors such as the economic impact of the central banks’ actions, ongoing geopolitical tensions and ongoing efforts to contain the COVID virus outbreak in certain emerging markets.”

Spencer Fernando