Canadian defined benefit pension plans have developed strong cushions, are well positioned to start 2026 

Toronto, January 5, 2026 — 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 Canadian defined benefit (DB) pension plans are starting 2026 in a very strong financial position. Despite Canada’s uncertain economic environment in 2025, DB plans generally demonstrated impressive resiliency throughout the year.

The Mercer Pension Health Pulse (MPHP), a measure that tracks the median solvency ratio of the DB pension plans in Mercer’s pension database, shows the median solvency ratio was 132% as of December 31, 2025. This is a notable increase of 7% in the ratio during 2025, including 3% in the final quarter. The solvency ratio is one measure of a pension plan's financial health.

Throughout 2025, Canadian DB pension plans generally experienced strong returns on equities and modest returns on fixed income. Interest rates increased which resulted in a slight decrease in the value of pension promises (actuarial liabilities). Overall, these outcomes contributed to a significant improvement in solvency ratios. DB pension plans that used fixed income leverage may have experienced stable or lower solvency ratios over the quarter.

Additionally, 68% of plans in Mercer’s database have a solvency ratio above 120%, which is an increase from 55% of plans at the start of the year. Further, the number of plans in Mercer’s database with a solvency ratio above 100% also improved from 88% to 92 % in 2025.

“Fuelled by tariffs, trade disruptions, and geopolitical risks, the Canadian economy experienced a turbulent year. Thanks to diversification and strong risk management frameworks, the overall financial health of DB pension plans continues to be generally secure from a solvency perspective for Canadian workers and retirees,” said Brad Duce, a Mercer Principal in Toronto.

On October 29, the Bank of Canada decreased the overnight rate from 2.5%¹ to 2.25% which is the fourth reduction of 25 basis points in 2025. The rate has remained unchanged since then, down from an overnight rate of 3.25% at the end of 2024. Despite the decrease in the Bank of Canada rate, yields on mid and long term bonds have increased during 2025 driving actuarial liabilities down.

All eyes on 2026

The sustained improvement of the funded levels in the last five years is good news for DB pension plan sponsors and members. Many pension plans have developed significant surpluses that serve as security margins as they head into the new year. Pension plans have faced turmoil in the past in far less favourable financial situations.

The Dot-Com Bubble, the Global Financial Crisis and COVID all hit when the financial standings of DB plans were already challenging. The current cushions allow plan sponsors to prepare for potential unfavourable scenarios and adapting their risk management frameworks accordingly.

Monitoring economic volatility will be key for plan sponsors in 2026. Pension plans with significant surpluses may be better positioned to handle economic challenges. Surplus can generally be used to take contribution holidays or set up strategic plan design changes. However, stakeholders must be cautious in using a surplus, as the financial health of some pension plans has deteriorated quickly in the past.

To support growth and employment, Federal and provincial governments are committed to boosting infrastructure investments and other “nation-building” projects. Significant private capital may be needed to execute upon these policies.

In 2026 and onwards, Canadian pension funds may face increased pressure from stakeholders to boost their investments in the local economy, driven by concerns about reducing dependency on trade with other countries, jobs and economic growth, ESG priorities and a desire to improve productivity.

However, as recommended in the 2025 Mercer CFA Institute Global Pension Index, pension plans should continue to focus on their primary mandate—delivering on pension promises—in all investment decisions.

“Mechanisms to attract institutional investment into domestic priorities should be incentive-driven,” said Mr. Duce. “As highlighted in the 2025 Mercer CFA Institute Global Pension Index, incentive-based approaches by government encourage capital deployment while enabling institutional investors to prioritize their fiduciary duties when making investment decisions.”

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 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 McLennan is 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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