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As we kick off the new year, it’s a great time to reflect on how defined benefit pension plans fared in 2025 — and what we might expect in the year ahead.

2025 in Review: A Strong Year for Markets

Equity markets delivered another impressive performance in 2025:

• TSX Composite Index: Up about 28%
• U.S. S&P 500 (unhedged in CAD): Up roughly 12%

On the fixed-income side, returns were modest as the yield curve steepened:

• Universe Bond Index: +2.6%
• Long-Term Bond Index: -0.8%

In particular, long-term government bond yields — key for valuing pension liabilities — remained fairly stable for most of the year, before rising about 50 basis points toward year-end.

What does this mean for Pension Funding

For plans that remain unhedged (those not following a “de-risked” strategy), 2025 was another positive year.  Strong equity returns combined with relatively stable bond yields mean:

• Solvency positions likely improved by 3% or more
• Going-concern funded status improved by 4% or more for many plans

This builds on the already strong financial position many plans enjoy today.  In fact, most pension plans within our client base are well funded on both a solvency and going-concern basis.  For some sponsors, these results could even support a contribution holiday with a new valuation or cost certificate.

Accounting Position at December 31, 2025

High-quality corporate bond yields — used to set discount rates for accounting purposes — were largely stable from December 31, 2024 to December 31, 2025.  As a result, benefit obligations for pension and post-retirement plans should look similar to last year.

However, thanks to strong investment performance, unhedged plans will likely see an improved accounting position, with funded status up 4% or more.

Key Themes to Watch in 2026

As we look ahead, here are the major topics we expect will be top of mind for pension plan sponsors this year:

Annuity Purchases: Interest in annuity buy-outs continues to grow.  Many sponsors are considering settling some — or even all — of their liabilities, especially for plans with large retiree populations.  In many jurisdictions, it’s now possible to obtain an annuity discharge, making this option even more attractive.

Why now you ask?

• Well, plans are well-funded
• Some believe we’re near the peak of a bull market, and
• Some hold concerns that interest rates could soon decline

Surplus Management: Surplus is increasingly becoming a hot topic.  Many sponsors are exploring ways to unlock value through strategies like contribution holidays, plan mergers, and sharing agreements with employees.  For closed or frozen plans, surplus access can be complex due to legislation and legal precedent, and many are weighing options — especially if winding up the plan is on the horizon.

De-risking and Winding-up: Improved funded status over recent years has made it less costly to:

• Adopt a de-risked investment strategy
• Purchase annuities
• Formally wind up the plan

These decisions are never simple.  Alternatives like annuity buy-outs with discharge provisions exist, so sponsors should consult their advisors before making a move.

Mortality Assumptions: Mortality assumptions are evolving. 

As you may recall, a new improvement scale was released in 2024 which relies more substantially on mortality rate models fitted to mortality data, and less on the expert judgement that was used in the development of previous mortality improvement scales.  Ultimately, this new mortality improvement scale assumes longer life expectancies than those which are currently in use – and would thus produce liabilities that are around 1% to 2% higher for a typical pension plan.

In the spring of 2026, a new base mortality table for Canadian pensioners is expected to be released.  It is our expectation that many entities will hold off to review their mortality assumptions for a base table and projection scale and do so on a holistic basis at that time.  However, some entities may wish to adopt the new improvement scale sooner to mitigate the potential change in the overall mortality assumption.

What This Means for Sponsors

2026 will be a year of strategic decisions — whether it’s managing surplus, exploring annuity purchases, or updating assumptions.  Staying informed and proactive will help sponsors make the most of strong funded positions while navigating regulatory and market changes.

With markets strong and many plans in a healthy position, 2026 could present opportunities for sponsors to revisit funding strategies, risk management, and their long-term pension strategy.  Staying proactive will be key as economic conditions evolve.

All the best to you in 2026!