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DB Plans Overcome Brexit


The health of Canadian defined benefit pensions improved quarter-over-quarter despite the recent headwinds from Brexit, says Aon Hewitt. Its pension plan solvency survey for the second quarter of 2016 found that through June 30, overall pension solvency of those plans surveyed rose by 2.3 percentage points in the quarter, as the immediate selloff in equities following Britain's vote to leave the European Union reversed in the last week of June. Going forward in the post-Brexit world, however, lower bond yields and the prospect of heightened market volatility continue to cloud the outlook for pension solvency. Its data suggest that the short-term impact of the UK referendum ‒ including the biggest two-day stock rout in history ‒ may already be subsiding. In the 48 hours after the vote result, overall pension solvency declined from pre-Brexit levels by as much as 1.7 percentage points, but recovered substantially as stock markets rallied last week. By quarter-end, 9.1 per cent of surveyed plans were fully funded, an increase of more than a percentage point from the fully funded ratio in the first quarter (eight per cent). "Brexit understandably created a lot of anxiety around the state of the global economy and the destabilizing effect of nationalist movements, but the reality is that the event itself had minimal short-term impact on our pension clients, who think long-term," says Ian Struthers, a partner and investment consulting practice director at Aon Hewitt. "However, we believe the continued decline in bond yields, which is likely only to be aggravated in a post-Brexit world, highlights a longer-term challenge for pensions and represents a risk factor that plan sponsors need to have a position on and address."

Courtesy of Benefits and Pensions Monitor website News Alerts 

 

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