Despite a return of 24% in Canadian stock markets in 2005, the financial health of pension plans in Canada continued to deteriorate.

“Pension plans continue to roll the proverbial rock up the hill,” says Paul Purcell, Global Retirement Professional Leader, Mercer Human Resource Consulting.

“The ongoing decrease in long-term interest rates means the value of pension promises are growing faster than pension funds”.

The Mercer Pension Health Index shows that plan funded ratios dropped off in the first half of last year and drifted sideways for the rest of the year.

“Over the last 18 months, while the Bank of Canada has increased its key policy rate by 1.25%, long-term bond yields have gone down by almost the same amount”, says Purcell.

“Another hit was the introduction of new rules last February requiring pension plans to recognize longer life spans when paying departing plan members a lump sum value in lieu of their monthly pensions.”

“Like a broken record, the message for 2006 is that organizations with pension plans should expect their cash funding requirements to go up again this year,” says Purcell.

“Their best hope for relief, in 2007 and beyond, is that upward pressure on short-term interest rates eventually works into the long-term rates as well.”