Canadian DB pension plans post loss in 2022

According to the latest survey from RBC Investor & Treasury Services (I&TS), Canadian defined benefit (DB) pension plans experienced significant losses throughout the year of 2022 despite a positive final quarter. Despite a 3.8% return in pension assets in the last three months of the year, the annual median return was -10.3%, which is the lowest observed since the 2008 financial crisis (-15.9%).

The top-performing asset class in the fourth quarter of 2022 was foreign equities, which returned 9.7% for the quarter and -11.3% for the full year. Meanwhile, Canadian equities trailed behind with a 6.3% return for the quarter and -3.6% for the full year. The largest annual fixed-income decline in more than 30 years was seen in Canadian pensions, with a 16.8% loss over the 12-month period.

Niki Zaphiratos, Managing Director of Asset Owners for RBC Investor & Treasury Services, noted that it was a challenging year for pension asset managers as both equities and fixed-income asset classes experienced losses. However, the rise in bond yields resulted in the lowering of pension liabilities, leaving most pensions in a better position by the end of the quarter.

In the coming months, Zaphiratos advised plan sponsors to be cautious of risk factors such as the economic impact of central banks’ actions, ongoing geopolitical tensions, and efforts to contain the COVID-19 virus outbreak in certain emerging markets.