Canadian defined benefit pension plans navigate volatility to improve overall financial health 

Toronto, July 2, 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 improved in the second quarter. DB plans continued their upward trajectory during a quarter that saw ongoing tariffs causing trade disruptions, an election in Canada, the elimination of the federal consumer carbon tax, and conflicts overseas.

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, started the second quarter at a level of 122%, declined to 121% at April 30, improved to 123% at May 31 and improved to 126% at June 30. The solvency ratio is one measure of a pension plan's financial health.

Throughout the second quarter of 2025, Canadian DB pension plans generally experienced decreased liabilities and positive returns on equities, which were partially offset by negative returns on Canadian fixed income. Overall, these trends generated an improvement in solvency ratios. DB pension plans that used fixed income leverage may have experienced stable or improved solvency ratios over the quarter.

Additionally, 59% of plans in Mercer’s database have a solvency ratio above 120%, which is a notable increase from 53% at the start of the quarter. Further, the number of plans in Mercer’s database with a solvency ratio above 100% also improved from 88% to 89%.

“From a solvency perspective, the overall financial health of DB pension plans for Canadian workers continues to be generally secure,” said Jared Mickall, a Mercer Principal and Wealth Practice Leader in Winnipeg. “There was an initial decline in April, which then improved during May and June. Equities experienced significant volatility throughout the quarter but ended on a positive note. Meanwhile, overall increases in fixed income yields resulted in an overall decline in liabilities and a general decline in fixed income assets.”

Inflation in Canada declined from 2.6% in February to 2.3% in March and further declined to 1.7% in April and held steady at 1.7% in May, all within the Bank of Canada policy target range. Since March 12, the Bank of Canada has maintained the overnight rate at 2.75% while interest rates at longer durations increased. The downstream impacts of tariffs, the new Canadian government, and ongoing international conflicts on the economy, interest rates, and inflation will be revealed. These factors, and others, highlight the complexities and unpredictability of the economic landscape.

The volatility in Q2 should serve as a reminder to DB pension plan sponsors that diversification and effective risk management of DB pension plans are essential. Mercer suggests that Canadian DB pension plans continue to monitor the movement of interest rates and credit spreads on Canadian bonds with longer maturities and monitor inflation and how it may impact their obligations, both in the short- and long-term.  

“Good governance of DB plans would include a review of recent market stresses on the investment and risk management strategies to gain insight on how the plans behaved and how to plan for 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 471 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 StatCan, 2025

² Bank of Canada, 2025

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 and X.

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