CANADA - The number of private pension plans on the Office of the Superintendent of Financial Institutions' (OSFI) watch list rose 10% from 77 to 86 at the end of the fiscal year.
OSFI said 67 of those were defined benefit plans and 19 defined contribution, while the average estimated solvency ratio for all plans fell to 0.90 over the year - compared to 1.00 the year before.
In its annual report, OSFI pointed out that estimated solvency ratios calculated using year-end 2005 data showed that approximately 78% of all defined benefit plans supervised by OSFI were under-funded, with 80% of these under-funded plans having liabilities that exceeded their assets by more than 10%.
"During 2005-2006, financial and economic conditions continued to create a challenging environment for the pension industry," OSFI said in the report, and added that historically low long-term interest rates and the introduction of new actuarial rules had a negative impact on the financial position of most plans.
Yet despite the findings, Nicholas Le Pan (pictured), OSFI Superintendent, remained optimistic on Canada's pension prospects and said the industry remained sound.
“The continued high level of confidence expressed by Canadians in financial institutions and pension plans reflects the safety and soundness of the financial services industry and while there are several contributing factors, we believe effective regulation and supervision is a key one.”
According to OSFI, there were 1304 private pension plans registered under the Pension Benefits Standards Act, with plan assets increasing 12% to a value of approximately C$116bn.
Looking at plans' overall allocation as at March 31, 2006, OSFI found that 58% of pension assets were invested in equities, with 37% in debt instruments and 5% in diversified and other assets.
"Overall, the performance of equity markets in 2005 has improved the outlook for pension plans. The TSX composite index rose 21.9% over the year," said OSFI. "Such positive returns were somewhat dampened by long-term interest rates that remained close to their historic lows."
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