The solvency position of most Canadian pension plans improved in the first quarter of 2012 on the back of good equity market returns and a slight increase in long-term federal bond yields.

Human resources consultant Mercer says the Mercer Pension Health Index was 63% at the end of March, up 3% over the quarter.

“Long-term federal bond yields increased by 15 basis points in the quarter,” says Scott Clausen, partner, retirement, risk and finance. “This raised the index by about 1%. Positive investment returns bumped the index up by roughly 2%, resulting in a net increase in the index of 3% over the quarter”.

Clausen adds that “Many plan sponsors are looking for an improvement in the health of their plans in 2012, after lacklustre investment returns and plummeting interest rates in 2011 brought funded ratios back down to 2008 levels.”

“Stock markets enjoyed a strong first quarter in 2012. Global markets were up almost 10% and emerging markets increased by 12% in Canadian dollars,” notes Rob Stapleford, leader of Mercer’s investment consulting business in central Canada.

“The Canadian market returned 4.4% and lagged other markets thereby continuing a trend started in 2011 after nearly a decade of substantial outperformance. The strong global performance reflected increased confidence in the U.S. economy and the outlook for a successful outcome of the European debt crisis.:

The bond market as measured by the DEX Universe returned -0.2% as overall bond yields rose slightly from the low levels at year end.

Mercer notes that a typical balanced portfolio would have returned 3.9% in the first quarter of 2012. This return does not capture any impact from active management of any asset class.