Canadian defined benefit pension plans are starting 2026 in a strong financial position, with the median solvency ratio reaching 132 per cent as of Dec. 31, 2025, according to Mercer’s Pension Health Pulse.
This represents a seven per cent increase in the ratio during 2025, including three per cent in the final quarter. The solvency ratio measures a pension plan’s financial health by comparing its assets to liabilities.
The improvement comes despite economic turbulence throughout 2025, with pension plans demonstrating resilience through diversification and risk management frameworks.
More plans reach surplus territory
The proportion of plans with a solvency ratio above 120 per cent increased from 55 per cent at the start of 2025 to 68 per cent by year-end, according to Mercer’s database of 471 pension plans across Canada.
Plans with a solvency ratio above 100 per cent also improved, rising from 88 per cent to 92 per cent during the year.
“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,” said Brad Duce, a Mercer principal in Toronto.
Market conditions drive improvement
Throughout 2025, Canadian defined benefit pension plans experienced strong returns on equities and modest returns on fixed income. Interest rates increased, resulting in a slight decrease in the value of pension promises.
The Bank of Canada decreased the overnight rate four times in 2025, dropping from 3.25 per cent at the end of 2024 to 2.25 per cent by late October. Despite this decrease, yields on mid and long-term bonds increased during 2025, driving actuarial liabilities down.
Cushions provide protection against uncertainty
The sustained improvement in funded levels over the past five years has created significant surpluses that serve as security margins heading into 2026, according to Mercer.
This contrasts with previous economic crises, when pension plans faced challenges from less favourable starting positions. The dot-com bubble, global financial crisis and COVID-19 pandemic all hit when defined benefit plans were already in challenging financial situations.
Pension plans with significant surpluses may be better positioned to handle economic challenges in 2026, according to Duce. Surpluses can be used for contribution holidays or strategic plan design changes, though stakeholders must exercise caution as the financial health of some pension plans has deteriorated quickly in the past.
Pressure to invest domestically may increase
Canadian pension funds may face increased pressure from stakeholders in 2026 to boost investments in the local economy, driven by concerns about reducing dependency on trade with other countries, jobs and economic growth, and environmental, social and governance priorities.
Federal and provincial governments are committed to boosting infrastructure investments and other nation-building projects, which may require significant private capital.
“Mechanisms to attract institutional investment into domestic priorities should be incentive-driven,” said Duce. “Incentive-based approaches by government encourage capital deployment while enabling institutional investors to prioritize their fiduciary duties when making investment decisions.”
Mercer’s analysis is based on its pension database, which contains financial, demographic and other information on 471 pension plans across Canada in every industry, including public, private and not-for-profit sectors.
