Normandin Beaudry warns new mortality tables could eat into pension cushions
Surpluses are up, but Normandin Beaudry says the “real work” now is how Quebec municipal and university plans manage that surplus.
Normandin Beaudry has updated its Pension Plan Financial Position Index for the Quebec municipal and university sector as at December 31, 2025, extending the tracking it began in 2021.
The consultancy reports that plans in this segment remain in strong financial shape and that surplus management has moved to the top of many administrators’ agendas.
Normandin Beaudry says the average financial position of pension plans improved in 2025, with investment performance generally outpacing the discount rates used in actuarial valuations on both going concern and solvency bases.
Strong equity markets and a slight increase in long-term interest rates supported higher surpluses over the year.
The index nonetheless shows a weaker last quarter.
Normandin Beaudry attributes the decline in the financial position in Q4 2025 to investment returns that came in slightly below expectations and to adverse moves in prescribed interest rates on a solvency basis.
For some plans, changes in risk posture and policy choices also weighed on the average position.
Normandin Beaudry points to de-risking in investment policy, higher margins for adverse deviations on a going concern basis, and the use of surplus as factors that contributed to a slight reduction in the quarter’s average financial position.
On a going concern basis, the firm adjusts the illustrated positions to reflect the full market value of assets, including the reserve in the prior component and the stabilization fund in the subsequent component, and it excludes asset smoothing.
With funding levels strong, Normandin Beaudry says surplus management is now a priority for many plan administrators in the sector. The firm expects upcoming changes to mortality assumptions to feed directly into that strategic discussion.
A new mortality improvements scale, CanMI-2024, released in 2024, projects faster growth in life expectancy and therefore higher pension costs.
Normandin Beaudry notes that most actuaries have not yet incorporated this scale into valuations, preferring to wait for the publication of a new mortality table expected in spring 2026.
According to Normandin Beaudry, if that new table is released as planned, valuation results will likely reflect the combined effect of the updated table and the CanMI-2024 scale, but it is still difficult to quantify the impact.
The firm suggests that this could influence going-concern results as of December 31, 2025.
Normandin Beaudry says it has conducted an in-depth mortality study in Canada covering more than one million lives per year and uses a methodology based on income and place of residence to refine mortality estimates and pension benefit valuation.
It adds that this approach affects plan funding and the assessment of premium competitiveness in annuity purchases.
Normandin Beaudry reports that central banks lowered key rates over 2025, particularly in Canada and the United States, while long-term interest rates moved up slightly.
The firm says this combination generally benefits pension plans because it reduces actuarial liabilities and current service costs.
The year also saw what Normandin Beaudry calls an unprecedented influx of capital into industries linked to artificial intelligence, which is driving higher demand for energy and raw materials and prompting large-scale measures to contain price increases.
According to the firm, China has taken the lead in innovation in renewable energy generation and storage, with clean energy making up about 90 percent of global growth in electricity generation.
It contrasts this with the United States, which it says remains focused on traditional energy and is actively seeking to secure global resources, citing recent actions involving Venezuela, Greenland and other Western countries.
Normandin Beaudry argues that the global artificial intelligence race requires close monitoring because of its potential repercussions for financial markets, labour markets, wealth distribution and geopolitics.
Normandin Beaudry calculates its Pension Plan Financial Position Index by projecting pension plan data for its clients in the Quebec municipal and university sector and publishes a separate index for Canadian plans outside this segment.
According to the firm, it projects assets using market index performance, and it projects going-concern liabilities with an estimated discount rate tied to each plan’s asset allocation and the sensitivity of asset classes to Government of Canada bond yields.
On a solvency basis, it uses transfer value rates prescribed by the Canadian Institute of Actuaries, which are based on the previous month’s market interest rates.
