Canadian pension plans ended the third quarter of 2025 with their strongest financial positions in recent years, driven by robust investment returns and a surging stock market, according to data released by pension consulting firm Normandin Beaudry.
The average pension plan funded ratio reached 134 per cent as of Sept. 30, 2025, up four percentage points in the third quarter and five points year to date. The average solvency ratio climbed to 120 per cent, up five points in the quarter and six points for the year.
The improved financial position reflects higher-than-expected investment returns while pension liabilities remained relatively stable due to steady discount rates, according to the consulting firm’s quarterly index.
Market performance drives gains
Canadian stock markets posted exceptional returns in the third quarter, with the S&P/TSX composite index climbing 24 per cent since the start of the year. Half of those gains came in the third quarter, fueled primarily by the gold sector.
Gold stocks surged as investors sought protection against inflation and U.S. dollar weakness amid geopolitical uncertainty and concerns about U.S. fiscal policy. The sector’s weighting in the Canadian stock market index doubled to 13 per cent, reflecting what Normandin Beaudry described as growing concentration in the domestic market.
Global stock markets also posted favourable returns, though the firm noted concentration concerns as technology and artificial intelligence stocks continue to dominate indices.
Interest rate environment shifts
Long-term interest rates remained comparable to early 2025 levels, while short-term rates continued to decline as central banks pursued monetary easing.
The Bank of Canada cut its policy rate by 0.25 percentage points to 2.5 per cent, continuing a trend that began in April 2024 when the rate stood at five per cent. The U.S. Federal Reserve also reduced its rate by 0.25 points, though it remains higher at 4.00 to 4.25 per cent.
Both central banks prioritized managing economic slowdowns and higher unemployment over inflation concerns, according to Normandin Beaudry.
Plans pursue risk management strategies
Many pension plans entered 2025 with favourable financial positions and maintained or increased surpluses despite a brief market correction in April 2025. The firm noted that ongoing market uncertainty, including concerns about tariff impacts on corporate earnings and stock market concentration, could prompt caution in surplus use.
Plans have implemented various funding strategies tailored to their specific circumstances. Common approaches include establishing thresholds before using surpluses, maintaining margins for adverse outcomes, and creating mechanisms that balance the interests of all stakeholders.
The purchase of group annuities has emerged as a notable strategy, allowing plans to transfer investment and longevity risks to insurers. Normandin Beaudry stated that conditions are currently favourable for such transactions given relatively high mid- to long-term interest rates and strong insurer demand.
The index tracks Canadian pension plans excluding those in the Quebec municipal and university sector, which are covered by a separate index.
