CANADA - The funding status remains a heavy burden for many Canadian pension funds as consistently strong returns have failed to curb growing liabilities, industry players have said.
Many funds have increased their assets significantly as they enjoyed double digit returns in the last year, but still funding ratios dropped lower than year before.
“It’s a huge problem,” said Scott Perkin, president of the Association of Canadian Pension Management (ACPM). “The long term real interest rates have increased costs of pension liabilities much faster than the pension assets were growing, creating huge funding problems for DB plans, and we are still dealing with those issues,” he said.
Claude Lamoureux, president of the C$96bn Ontario Teachers Pension Plan added that high benefits costs were exacerbating the problem.
OTPP has seen its unfunded liabilities soar from $19bn to $32bn in one year, even though it enjoyed double digit returns for two years, and Lamoureux said: “Most pension plans are in a deficit today. Yes, returns are good in Canada, but on the other hand, the present value of benefits is increasing faster than investment returns.”
“That said, pension funds are a long term prospect, so you have time on your side. But you cannot wait hoping problem will disappear.”
ACPM’s Perkin agreed the recent rise in interest rateshad come as welcome news to funds, but stressed it was merely part of a larger problem facing Canadian pension funds.
“The interest rate problem could just be short term, provided interest rates continue to rise, but it has also served to highlight a lot of the other funding problems that plans have had,” he said.
Plans have faced two decades of litigation over surplus ownership, and endured strict funding rules, he said.
“We hope this year the government starts making pension reforms, looking at our funding report and dealing with it seriously.”
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