This page has been archived and commenting is disabled.
Canadian Pension Plans Still Reeling
John Morrissy of the Financial Post reports in the Montreal Gazette, Pension plans fail to reap recent stock gains:
Canadian pension plans hardly benefited from the third quarter's solid stock gains, as falling bond yields weighed on returns, global services firm Mercer said Thursday.
Mercer's Pension Health Index stood at 68 per cent in September, up only one point during the quarter, the report said.
The index is a ratio of assets to liabilities. The most recent figures show that 68 per cent of liabilities — or projected payouts to pensioners — are covered by current assets — largely stocks and bonds.
The last time payouts were fully covered by assets was in early 2002. The number has fallen steadily since, dipping as low at 60 per cent at the height of the financial crisis in 2008, and leading to public concern about the health of individual pension plans.
"For the second straight quarter, long-term federal bond yields declined significantly, dropping 30 basis points during the quarter," said Mercer executive Paul Forestell.
"This resulted in higher pension liabilities measured on a solvency basis, decreasing the Index by about five per cent."
During the most recent quarter, Canadian equities returned 10.3 per cent while bonds, as measured by the DEX Bond Universe index, returned 3.2 per cent. Bond yields, conversely, fell from 3.08 per cent at the beginning of the quarter to 2.8 per cent at the end.
The Canadian dollar, which rose about 3.5 per cent against the U.S. dollar during the quarter, had a mixed impact on Canadian pension plans, boosting returns in international equities but diminishing returns in U.S. stocks, Mercer said.
This isn't just a Canadian problem. Serious deficits exist across all global pension plans. Lower bond yields and lackluster equity markets are a lethal cocktail for pension plans' funded status. It could take years before they shore up their funded status. This is yet another reason why central banks are trying so hard to reflate risk assets to generate higher inflation expectations.
Will they succeed? The jury is still out on that one, but let me leave you with an excellent interview with Jim Bianco. Click here and listen carefully to Jim's comments. I think Friday's jobs figures will come in better than expected and the USD will rally. We'll see how markets react, but one thing is for sure, bubbles abound. Be very careful fighting the market here -- keep buying the dips.
***Update: US labor market remains weak***
It's frustrating watching this play out month after month, but the labor market remains weak. The US lost more jobs than forecast in September, reflecting a decline in government payrolls that shows the damage being done by rising budget deficits. Even here in Canada, the economy unexpectedly lost 6600 jobs in September, Statistics Canada said Friday, as the country's recovery faltered after an initially strong rebound from recession. Get ready for more QE, and some major bubbles.
»
- advertisements -
From Bono's lips to Steve Rattner's crooked as a dogs hind leg ear...
Associated Press Official: NY ex-comptroller to plead guiltyBy MICHAEL GORMLEY , 10.07.10, 09:12 AM EDT
ALBANY, N.Y. -- A law enforcement official close to the case says former New York state Comptroller Alan Hevesi has turned himself in and is expected to plead guilty to a felony corruption charge.
http://www.forbes.com/feeds/ap/2010/10/07/general-us-pension-probe-heves...
Too many people get lost in the minutae; all this talk of yields and such distract from the basic reality. Step back a bit and look at the big picture. The way most of the world's pensions sytems are designed, in order to have a comfortable, long retirement you need two things... the following generations must be bigger than yours and must be wealthier than yours. Without those two things the pension machine grinds to a halt.
Ultimately, all those stock prices/dividends and all those bond yields are only going to track the number and wealth of your descendents. And most of the West is downsizing and outsourcing away their own retirements.
They say the poor folk in third world countries have a lot of children so they can be supported in their old age. Well, someday we'll realize... it's the same in the first world; it's just been kicked up to the national level instead.
+100 internets
Authorities are misdiagnosing a secular issue of demographics and solvency as though it were about confidence and liquidity.
Do they make CDS on pension plans. I'd like to own a few of those.
They sort of do. You can buy bonds from Crown Companies like NavCanada, CMHC, Innovapost, CanadaPost. Or by proxy of companies like CGI (piece of bear shit company).
There are a lot of options to purchase bonds. Out of any I listed I wouldn't touch ANY of them. If you want to look at the future of yields, rail and coal/nuclear. we don't have any choice in the matter in terms of infrastructure and delivering goods with oil reserves shrinking over time with lots of new cars on the road in India and China that didn't exist in previous projections of peak oil.
Alternatively if living in a city with a canal system, might want to see what companies deal in investment terms for shipping goods by boats that aren't exclusively run on diesel.
Lower bond yields means higher bond prices. So what's the problem. They should be invested in long term bonds, matching duration to liability. When yields drop, my bonds go up in price and I am richer, not poorer.
Lower bond yields increase the present value of fture liabilities, so it's not good for pension plans. You need higher bond yields and higher equity prices.
That's not entirely true. One can also use inflation to counter the requirements. So far that seems to be the plan all round. However in Canada we have a two tiered problem. The pensions not being able to pay out was a given, the mechanism as to why wasn't explained clearly, pardon, was not explained in the article. So on the to WHY.
One: Our dollar is effectively on parity again against 80% of our trade partner the USA. And in terms of thrid world piss tanks like China and India, our materials have effectively knee capped their ability to pay for all those large infrastructure projects.
Two: Since we're not selling anything this month, and if the Canadian dollar stays strong, we'll end up putting the kibosh on any possibilty of profit for the future.
How it will collapse? Baddly.
The pension system in Canada really does one thing. It funds the medical system on top of the medical system being funded by the tax payers.
When someone goes into a long term care facility, they really give up their pension to have health care provided. It's less about providing a place for someone to stay, it's closer to warehousing medical requirements for the elderly. So when people start talking about pensions being needed to exsist outside the work force, most idiot sticks think about how they are going to go sailing in the south pacific or lounge around Florida.
The reality is, Health in humans vanishes pretty quickly after a certain age regardless of how many people we know that lived to 100 smoking, drinking and fucking like a rabbit. 99% of us hit 65 with a handful of pills and by 70, it's closer to two handfuls of pills.
So without the pension system intact, in Canada at least, we'll see a mediocre health care system degrade into a poorly funded social mechanism.
I'm pretty sure the same can be said in the US and Europe in terms of what pensions do for most people.
Oh yes, of course they will succeed ---- in nominal terms. But what you clueless Keynesian statists and big-government worshippers of all stripes fail to realize is that governments do not and can not CREATE wealth, they can only redistribute and consume it. All the central bank games in the world cannot fund, in real terms, that which is already underfunded.
The USD has put in a temporary bottom against the Japanese yen. Expect a relatively sharp ramp in the pair over the next month.
Upside target to at least 84, then a possible retrace continuation to the long-term -50% (yes, a retrace up to negative fi'ty...) Fibonacci level at the 85.7 level.
Time to trade the yen. Rejoice!
Olexsandra
"Keep buying the dips" - Tzatziki?
Leo just stick to eating your greek food and leave financial news to others:
Gyros anybody?
Whoa whoa whoa. Did I read that right? The un/underfunded pension problem extends beyond Canada?!
Shame, I guess they didn't clue in to go "all-in" in Chinese solars.
That'll be OK, they'll be able to find plenty of yield once we learn that a bunch of RMBS derivatives turn out to be empty boxes because the note was never transferred.