Rising surpluses offer security, but sponsors face tough calls on using the excess
Most Canadian defined benefit pension plans are sitting on sizeable funding cushions, with a median solvency ratio of 132 percent as they move into 2026.
The Mercer Pension Health Pulse (MPHP), which tracks the median solvency ratio of DB plans in Mercer’s database, reports a 7-percentage point improvement over 2025, including a 3‑point gain in the final quarter alone.
The solvency ratio, a key indicator of a plan’s ability to meet its obligations, now shows most plans well above fully funded territory.
Mercer’s data indicates that 68 percent of plans in its database have a solvency ratio above 120 percent, up from 55 percent at the start of 2025.
The share of plans with ratios above 100 percent also rose, from 88 percent to 92 percent over the year.
Many plans have therefore built meaningful surpluses that act as security margins if economic conditions deteriorate.
Brad Duce, a Mercer principal in Toronto, said the Canadian economy was “fuelled by tariffs, trade disruptions, and geopolitical risks” and “experienced a turbulent year.”
He added that thanks to diversification and strong risk management frameworks, the overall financial health of DB pension plans “continues to be generally secure from a solvency perspective for Canadian workers and retirees.”
Plan performance over 2025 reflected both markets and interest rates.
Canadian DB plans generally saw strong equity returns and modest fixed income gains.
At the same time, higher interest rates reduced actuarial liabilities, reinforcing the improvement in solvency positions.
Plans using fixed income leverage may have seen more muted, or even weaker, solvency outcomes over the quarter.
Monetary policy also shaped the environment.
On October 29, the Bank of Canada cut the overnight rate from 2.5 percent to 2.25 percent, its fourth 25‑basis‑point reduction in 2025, after the rate stood at 3.25 percent at the end of 2024.
The overnight rate has remained unchanged since.
Despite these moves, yields on mid‑ and long‑term bonds rose over the year, pushing the value of pension promises lower and contributing to stronger funded positions.
The current backdrop contrasts with earlier crises such as the Dot‑Com Bubble, the Global Financial Crisis and COVID‑19, which hit when DB plans were in less favourable shape.
Today’s cushions give sponsors more room to prepare for adverse scenarios and to adjust risk management frameworks.
However, Mercer warns that stakeholders need to remain disciplined when considering how to use surpluses, as some plans have seen their financial health erode quickly in past downturns.
