FSRA urges plan sponsors to brace for 2026 rate and market risks
Nearly all Ontario defined benefit pension plans ended 2025 at or above full solvency, with a median solvency ratio of 124 percent.
The Financial Services Regulatory Authority of Ontario (FSRA) reports that, as at December 31, 2025, the median projected solvency ratio for Ontario DB plans was 124 percent, unchanged from September 30, 2025 and up from 122 percent a year earlier.
Ninety‑two percent of plans were fully funded on a solvency basis, 6 percent had a solvency ratio between 85 and 100 percent, and 2 percent were below 85 percent.
The Q4 2025 report covers the period from October 1 to December 31, 2025 and forms part of FSRA’s quarterly monitoring of DB plans that are subject to solvency funding.
FSRA uses the estimated solvency ratios as a supervisory tool and as input to discussions with plan sponsors where benefit security may be a concern.
The agency also intends the information to support plan fiduciaries in administering their plans and investing assets, and to give plan members current data on funding levels and economic conditions.
Andrew Fung, executive vice president, pensions at FSRA, said 2025 ended strongly after a volatile first half, helped by solid equity markets and resilient Ontario pension plans.
He cautioned that “plan sponsors and administrators should remain vigilant” as they face potential risks in 2026, including interest rate changes, market corrections and ongoing geopolitical and economic uncertainty.
Investment performance and discount rate shifts largely explain the stable aggregate solvency position since the third quarter.
FSRA estimates that pension funds earned an average gross return of 0.8 percent in Q4 2025 and 0.6 percent net of expenses, with an average net return of 7.7 percent for the year.
Non‑indexed commuted value discount rates for the select and ultimate periods decreased by 30 basis points, while the non‑indexed annuity purchase discount rate increased by 26 basis points.
FSRA reports that, taken together, these moves produced a slight decrease in pension liabilities for most plans.
The report emphasises governance and risk management.
FSRA notes that plan administrators act as fiduciaries and must adhere to a high standard of care.
It points to the need for an effective governance framework, an understanding of key risks and their impact, and risk mitigation strategies.
The regulator underscores the importance of considering the plan’s ability to absorb fluctuations in funding costs and the probability of delivering promised benefits under a range of potential funding and investment outcomes.
FSRA encourages the use of stress testing, modelling and other analytical tools to assess risks and support long‑term financial stability.
FSRA outlines the methodology behind the quarterly estimates.
It projects each plan’s most recent filed actuarial valuation of assets and liabilities to December 31, 2025.
Assumptions include sponsors using all available funding excess and prior year credit balance for contribution holidays, subject to statutory limits, and making normal cost contributions and special payments at statutory minimum levels where required.
Cash outflows equal reported pension amounts payable to retired members, while administration costs appear indirectly through net investment earnings.
Projected liabilities use the Canadian Institute of Actuaries’ Standards of Practice for Pension Commuted Values and applicable CIA annuity purchase guidance.
Actual net rates of return come from each plan’s latest Investment Information Summary (IIS).
Where FSRA needs to estimate returns, it applies the plan’s IIS asset allocation to market index returns and deducts a 25‑basis‑point quarterly expense charge.
On average, plans hold 4.8 percent of assets in cash and short‑term investments, 16.8 percent in Canadian equities, 18.6 percent in foreign equities, 54.0 percent in fixed income, 4.4 percent in real estate and 1.4 percent in other assets.
FSRA’s market data for Q4 2025 show a mixed backdrop: the S&P / TSX Total Return Index returned 6.3 percent, the MSCI World Total Net Return Index returned 1.6 percent and the FTSE Canada 91‑day T‑Bill Index returned 0.6 percent.
The FTSE Canada Universe Bond Index returned -0.3 percent, the FTSE Canada Long Term Bond Index returned -1.4 percent and the Cohen & Steers Global Realty Majors Index returned -2.9 percent.
