2008 record year for decline in value of Canadian pensions

Canadian pension plans suffered the steepest annual decline on record as global equity markets continued to plunge in the fourth quarter of 2008

Toronto (January 23, 2009) – According to a recent survey of pension plans administered by RBC Dexia Investor Services with $310 billion in assets, those assets fell 7.0 percent in the quarter ending December 2008, pushing 12-month losses to 15.9 percent.

“The dismal outcome for 2008 eclipses the previous annual record set in 1974 when pension portfolios shrank by 12.7 per cent,” according to Don McDougall, Director of Advisory Services for RBC Dexia. “Mind you, pension performance data goes back only to the early 1960’s. Before that, we would have to look to the Great Depression of 1929-32, but figures are sketchy. Pensions were uncommon in that era and, in any case, equity exposure would have been quite limited.”

Domestic equity was the hardest hit asset class as the S&P TSX Composite index lost 33.0 per cent over the year. “Pensions fared a little better, outperforming the index by 1.5 per cent on the strength of their holdings in consumer staples – the only sector to remain unscathed,” said McDougall. All other sectors retreated, shedding between 21.1 and 48.4 per cent from the start of the year. Financials, the last major group to succumb, tumbled 29.6 per cent in the final quarter, as the S&P TSX dropped 22.7 per cent.

In Canadian dollar terms, global equities lost 27.8 per cent for the year, lagging the MSCI World Index by 1.9 per cent. “Most pension funds remained under-exposed to the US market,” reported McDougall.

Thanks to a late fourth quarter rally, Canadian bonds earned 4.5 per cent for the year – although this fell short of the 6.4 per cent gain in the DEX Universe broad market benchmark. McDougall observed, “Shorter duration bonds prevailed. Credit quality was king across all maturity categories. Long-term federal bonds outdid long-term corporate debt by 24 per cent for the year.”

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