The value of Canadian pension plans suffered the largest quarterly decline in a decade as the credit crisis caused equity markets around the world to drop.
Toronto (20 October 2008) – Big drops on stock markets in the third quarter pushed down the value of pensions by 8.6 per cent in the third quarter, the largest quarterly drop in a decade, said a survey released Friday by pension services company RBC Dexia. Year-to-date, the net worth of pensions declined 10.1 per cent and so far the situation doesn't look likely to improve in the fourth quarter, according to the survey.
RBC Dexia is the second pension consulting group this month to report a 10 per cent drop in the value of the assets of pension plans, RRSPs, mutual funds and other investments held by Canadians. The Mercer Pension Health Index said its index was down about six per cent from the end of the second quarter and about 10 per cent for the year so far. The index is a theoretical pension plan that was 100 per cent funded at January 1999.
Stocks on the Toronto Stock Exchange (TSE) have lost about a third of their value - or about $600 billion - since the beginning of the year as fears of a global recession have battered many of the Canada's blue-chip companies.
RBC Dexia said while pension funds lost significant ground, they still outperformed the stock market, as they cashed in on investments in more profitable stock sectors, or bonds, private equity and infrastructure.
Under 40 per cent of Canadians have workplace pension plans, however all Canadian workers pay into the Canada Pension Plan (CPP), which invests into the stock market and numerous other sectors.
Many of the pension plans that the members of the National Union belong to, such as the Public Service Pension Plan and the Municipal Pension Plan in British Columbia and the OPTrust covering government workers in Ontario, are also major players in the stock markets, though they have been trying to diversify their investments to avoid the boom-to-bust cycles of the market.
Over the past week, the agencies in B.C., Ontario and Nova Scotia which manage the investments of public sector pension plans issued similar bulletins to concerned plan members stating that their pensions funds are safe and secure despite the current turmoil in the financial markets. These public sector plans are defined-benefit plans, meaning that the retirement benefits owing to current and future pensioners are guaranteed regardless of market volatility. If the market turmoil continues for a long period of time, plan members and their employers could be looking at an increase in their monthly contributions to their plan.