niche investment / Olivier Le Moal

Canadian defined-benefit (DB) pension plans registered a 4.5% median return in the fourth quarter of 2021, concluding the year with an 8.9% annual return, according to RBC Investor & Treasury Services.

While Q4 median pension plan returns for the RBC Investor & Treasury Services All Plan Universe increased by 3.9 percentage points over the third quarter, annual returns fell by 0.3 percentage points compared to 2020.

“Despite increased volatility over concerns about the omicron variant and mounting inflationary pressures, Canadian pension plan returns were significantly boosted by their exposure to equities,” said Niki Zaphiratos, managing director of asset owners and client coverage in Canada for RBC Investor & Treasury Services, in a statement. “New Covid-19 variants, the Russia-Ukraine crisis and imminent interest rate hikes – stemming from global shortages of workers and resulting inflationary pressures – introduce the potential for further volatility. Plan sponsors will have considerable risk factors to navigate in 2022.”

Canadian equities in All Plan Universe returned 6.5% in Q4 2021, and ended the year with a 27% annual return. (The TSX Composite index also returned 6.5% in Q4, but only gained 25.1% over the year.)

Foreign equities in the universe didn’t fare as well, returning 5.3% in Q4 and 17.1% annually. They also underperformed the MSCI World index, which returned 7.5% in Q4 and 20.8% in 2021. RBC noted that the strong Canadian dollar hampered local currency returns for unhedged pension plans.

Canadian fixed-income assets registered a 2.7% gain in Q4 2021, but returns for the year were down by 1.9%. The pension plans outperformed the FTSE Canada Universe Bond index, which returned 1.5% for the quarter and -2.5% for the year. During the fourth quarter, longer-dated bonds benefited from a flattening yield curve and, as a result, outperformed shorter-dated bonds.