Canadian DB pensions remain resilient amidst tariff uncertainty and Q1 volatility 

Toronto, April 1, 2025 — Mercer, a business of Marsh McLennan and a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people, today shares that the overall financial health of Canadian defined benefit (DB) plans remains strong despite market volatility in the first quarter. With tariffs imposed on certain Canadian exports and the potential for further trade disruptions, DB plans are navigating a complex landscape. The Mercer Pension Health Pulse (MPHP), a measure that tracks the median solvency ratio of the defined benefit pension plans in Mercer’s pension database, declined to 122% at March 31, 2025, from its level of 125% as at December 31, 2024. The solvency ratio is one measure of a pension plan's financial health.

Throughout the first quarter of 2025, pension plans experienced increased liabilities and mixed returns between asset classes. Index returns on Canadian large cap equities, Canadian fixed income, and MSCI EAFE (i.e., large and mid-cap representation across developed countries around the world, excluding the US and Canada) were generally positive, whereas returns on US large cap equities were negative. These trends resulted in an overall decline in solvency ratios. DB pension plans that used fixed income leverage may have experienced stable or reduced solvency ratios over the quarter.

Additionally, 53% of plans in Mercer’s database have a solvency ratio above 120%, which is a decline from 55% at the start of the year. Further, the number of plans in Mercer’s database with a solvency ratio between 110% and 120% increased to 22% from 20% and the number of plans with a solvency ratio above 100% was generally stable at 88%.

“The overall financial health of Canadian DB pension plans remains strong, despite a slight decline during the quarter,” said Jared Mickall, a Mercer Principal and Wealth Practice Leader in Winnipeg. “Asset performance was mixed and liabilities increased. From a solvency perspective, DB pension plans for Canadian workers continue to be generally secure.” 

Tariffs have been imposed on certain Canadian exports and may be extended to other industries, which has heightened uncertainty in the Canadian economy. With this, diversification and effective risk management of DB pension plans are essential for addressing Canadian interest rate changes, inflation risks and ongoing market volatility. Mercer suggests that DB pension plan sponsors regularly review a plan’s risks to be retained or transferred, including, but not limited to, annuity purchases, and assess its investment policy.

The Bank of Canada cut the overnight rate from 3.25% to 3.00% on January 29 and to 2.75% on March 12¹. Interest rates at longer durations did not decrease as much, resulting in a steepening of the yield curve. Due to the long-term nature of DB pension plans, stakeholders will be keen to monitor the movement of interest rates and credit spreads on Canadian bonds with longer maturities. 

Further, inflation in Canada rose to 2.6% in February, after coming in at 1.9% in January², which are both within the Bank of Canada policy target range. Goods and Services Tax (GST) and Harmonized Sales Tax (HST) were reapplied to eligible products, as the federal tax break ended on February 15, contributing to the increase in inflation. Canadian DB pension plans with inflation-related benefits are suggested to monitor inflation and how it may impact their obligations, both in the short- and long-term. 

“While solvency financial positions may have deteriorated slightly during the first quarter, DB plans are likely to be well-positioned to strategically re-evaluate their investment and risk management strategies as well as their governance frameworks, in light of their exposure to potential adverse events,” continued Mr. Mickall.

The Mercer Pension Health Pulse tracks the median ratio of solvency assets to solvency liabilities of the pension plans in the Mercer pension database, a database of the financial, demographic and other information of the pension plans of Mercer clients in Canada. The database contains information on approximately 473 pension plans across Canada, in every industry, including public, private and not-for-profit sectors. The information for each pension plan in the database is updated every time a new actuarial funding valuation is performed for the plan. 

The financial position of each plan is projected from its most recent valuation date, reflecting the estimated accrual of benefits by active members, estimated payments of benefits to pensioners and beneficiaries, an allowance for interest, an estimate of the impact of interest rate changes, estimates of employer and employee contributions (where applicable), and expected investment returns based on the individual plan’s target investment mix, where the target mix for each plan is assumed to be unchanged during the projection period. The investment returns used in the projections are based on index returns of the asset classes specified as (or closely matching) the target asset classes of the individual plans. 

¹ Bank of Canada, 2025

² StatCan, 2025

About Mercer

Mercer, a business of Marsh McLennan (NYSE: MMC), is a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people. Marsh McLennanis a global leader in risk, strategy and people, advising clients in 130 countries across four businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. With annual revenue of over $24 billion and more than 90,000 colleagues, Marsh McLennan helps build the confidence to thrive through the power of perspective. For more information, visit mercer.com, or follow on LinkedIn.

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