Pension plans eke out positive return in 2011

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Canadian pension plans eked out a positive return in 2011, averaging a 0.5 per cent return for the year.

A survey of major Canadian pension plans by RBC Dexia Investor Services found plans reported they earned 4.2 per cent on their investments in the fourth quarter last year, pushing their full-year returns into barely positive territory.

"It's been a tumultuous year for global markets," said Don McDougall, director of advisory services at RBC Dexia.

"We had a natural disaster in Japan, geopolitical tensions in the Middle East, a stubborn U.S. recovery with its ensuring political backlash, sputtering Chinese growth and the ever-lingering European debt crisis. Most pensions will be pleased it's over."

The survey compiles results from pension plans across Canada with assets under management totalling $340-billion.

The results are similar to estimates published early this month by pension consulting firms that track investment returns using hypothetical model portfolios with typical asset allocations.

The break-even returns mean pension funds still saw their funded status decline in 2011. Pension liabilities are calculated based on long-term bond yields, which fell in 2011, driving up the amount of money pension plans are required to set aside to provide pensions to plan members.

RBC Dexia said pension funds reported Canadian equities were their hardest-hit asset class, with mining, energy and financial services accounting for the bulk of the market's decline in Canada in 2011.

Canadian equity portfolios underperformed the S&P/TSX Composite index by 0.9 per cent for the year, RBC Dexia said, although beat the composite index in the fourth quarter by 0.6 per cent.

Foreign equities also dragged down returns last year, losing 4.2 per cent and underperforming global benchmarks by 1 per cent. Mr. McDougall said there was broad weakness in foreign markets, although the U.S. market was up 2 per cent for the year, making it one of a select few to remain positive.

"Canadian plans also benefitted from a weaker Canadian dollar against most major currencies with the exception of the euro," Mr. McDougall said.

Strong returns from bonds offset stock losses, RBC Dexia reported. Bonds climbed by 9.8 per cent in 2011, with the global DEX Long Term bond index recording its best calendar year since 1997.