Pathways to Sustainability
Canadian Defined Benefit Pension Survey 2021

RBC Investor & Treasury Services’ fourth annual survey of Canadian defined benefit pension plans, conducted in November of 2020, reflects the perspectives of 122 pension plans from across the country.

4.0~

Declining confidence in meeting liabilities

50%

Proportion of fully-funded pensions—down from last year

Low interest rates

Top near-term challenge again this year

73%

Proportion of pensions that hold alternatives—up from last year

3.5~

Growing importance of SRI

~Based on a 5-point scale where 5=extremely confident/important and 1=not at all confident/important

Key takeaways

  • Confronted with persistently low interest rates and deteriorating funded status, pension plans are less confident in meeting future liabilities but the outlook continues to be upbeat
  • Re-assessment of asset management strategies and higher contributions are the most likely responses to COVID-19
  • Pension plans will be reviewing their asset mix to enhance ongoing sustainability
  • Liability-driven investments (LDIs) remain the top de-risking strategy but their importance continues to decline as the use of alternative investments gains momentum
  • Pensions are increasingly embracing alternatives and, while real estate and infrastructure remain the most popular alternative investments, demand for real estate appears to have softened
  • The indirect alternative investment model continues to be the top approach overall but the direct model is preferred by large and private-public plans that are closely managing these investments
  • Interest in socially responsible investing (SRI) is increasing but remains less than enthusiastic as the gap between pension plans and asset managers narrows

Did you know?

22%

of Canadians will be seniors by 2030— up from 17% in 20181

38%

of pension assets are alternatives—more than tripling since 20042

$82T

of infrastructure investment will be required by 2040 globally3

50%

of responsible investment assets are held by pensions4

1Statistics Canada and RBC Economics, September 17, 2019
2Pension Investment Association of Canada, defined benefit pension plans as at December 31, 2019
3The Economist, In the Works, January 2, 2021, USD
4Responsible Investment Association, Canadian RI Trends Report 2020

Survey results

Outlook

Confidence in meeting liabilities declines but remains bullish

De-risking

LDIs and alternative investments are the top de-risking strategies

Funded status

Fewer pension plans are fully funded

Alternatives-adoption

Pensions are increasingly embracing alternative investments

Challenges

Low interest rate environment is the overriding concern

Alternatives-asset classes

Real estate and infrastructure are the most popular alternatives

COVID-19 responses

The pandemic will necessitate re-assessment of asset management strategies

Alternatives-investment models

The indirect alternative investment approach is most popular

Pension sustainability

Ongoing sustainability may require changes in asset mix

Socially responsible investing

The importance of SRI increases but interest remains lukewarm

About the respondents

This year's survey includes the aggregate responses of 122 Canadian defined benefit pension plans, compared to 119 in the previous year.

This chart shows the proportion of survey respondents by location.
This chart shows the proportion of survey respondents based on asset size.
This chart shows the proportion of survey respondents by type of pension plan.
This chart shows the proportion of survey respondents based on plan status.
This chart shows the proportion of survey respondents based on their role within the organization.
  1. * Including board secretary, consultant, outsourced chief investment officer, plan administrator and "not disclosed"

About RBC Investor & Treasury Services

RBC Investor & Treasury Services is a specialist provider of asset services, custody, payments and treasury services for financial and other institutional investors worldwide, with over 4,500 employees in 16 countries across North America, Europe and Asia. We deliver services to safeguard client assets, underpinned by client-centric digital solutions that continue to be enhanced and evolved in line with our clients’ changing needs. Trusted with $4.5 trillion in client assets under administration,1 RBC Investor & Treasury Services is a financially strong partner with among the highest credit ratings globally.2

CONTACT US

David Linds
Managing Director and Head
Asset Servicing, Global Client Coverage
Canada
david.linds@rbc.com

Paul Folk
Managing Director and Head
Asset Managers and Private Clients
Global Client Coverage, Canada
paul.folk@rbc.com

Sylvain Gervais
Managing Director and Co-Head
Global Client Coverage
Eastern Canada
sylvain.gervais@rbc.com

Niki Zaphiratos
Managing Director and Head
Asset Owners, Global Client Coverage
Canada
niki.zaphiratos@rbc.com

  1. 1 Royal Bank of Canada quarterly results released October 31, 2020
  2. 2 Standard & Poor’s (AA-) and Moody’s (Aa2) legacy senior long-term debt ratings of Royal Bank of Canada as of December 1, 2020

Throughout this report, currencies are in Canadian dollars and percentages show proportion of choices unless otherwise indicated

© Copyright Royal Bank of Canada 2021. RBC Investor & Treasury Services™ (RBC I&TS) is a global brand name and is part of Royal Bank of Canada. RBC I&TS operates primarily through the following companies: Royal Bank of Canada, RBC Investor Services Trust and RBC Investor Services Bank S.A., and their branches and affiliates. This document is provided for general information only and does not constitute financial, tax, legal or accounting advice, and should not be relied upon in that regard. RBC I&TS makes no representation or warranty of any kind regarding the accuracy or completeness of any information contained or referred to in this document. To the full extent permitted by law, neither RBC I&TS nor any of its affiliates or any other person accepts any liability whatsoever for any direct, indirect or consequential loss or damage arising from any use of the information contained herein by the recipient or any third party. Links to external websites are for convenience only. RBC I&TS does not review, endorse, approve, control or accept any responsibility for the content of those sites. Linking to external websites is at your own risk. ® / ™ Trademarks of Royal Bank of Canada. Used under licence.

rbcits.com