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Canadian DB Pension Plans Gain Ground in 2017

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Defined benefit (DB) pension plans’ inevitable demise is a long-held truth. Or is it? RBC Investor & Treasury Services in February 2018 revealed that Canadian defined benefit pension plans ended 2017 in positive territory, posting an annual return of 9.7 percent.

In addition, a recent RBC Investor & Treasury Services poll of Canadian defined benefit pension plan sponsors showed their median funded status stands at 96 percent. The poll, A Confident Outlook, revealed that nearly 26 percent of respondents reported levels in excess of 100 percent and only five percent with funded levels of less than 70 percent. 86 percent of respondents remain confident they can meet their ongoing pension liabilities.

Continuing low-interest rates, an uptick in the global economy, recovering emerging markets and improving labour markets helped fuel 2017 global equity returns.

While the Canadian economy was a strong performer in 2017, and the Bank of Canada interest rate hike in September of 2017 boosted financial stocks in Q4, the energy sector weighed down year-over-year returns on the TSX. In 2016, however, Canada’s three largest sectors– energy, materials and financial services, posted strong results, helping lift returns.

The RBC Investor & Treasury Services poll also revealed that 40 percent of respondents identified low-interest rates as their main concern in the year ahead. In 2017, Canadian bond yields rose across most of the curve while the Bank of Canada’s interest rate hikes in July and September led to a flatter yield curve when compared to the start of the year.

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