Strong solvency levels give plan sponsors room to manage risk, policy shifts and domestic pressures in 2026
Canadian defined benefit (DB) pension plans are beginning 2026 from one of the strongest financial positions seen in years, according to new data from Mercer.
Despite economic uncertainty through much of 2025, plan funding levels proved resilient, leaving many sponsors with sizeable buffers as they look ahead and the Mercer Pension Health Pulse, which tracks the median solvency ratio across DB plans in Mercer’s Canadian database, shows the ratio reached 132% as of December 31, 2025.
That represents a seven-percentage-point improvement over the course of the year, including a three-point gain in the final quarter alone. Solvency ratios are a key indicator of a plan’s ability to meet its long-term pension obligations.
Equity markets delivered solid performance in 2025, while fixed income returns were more muted. At the same time, rising interest rates reduced the present value of pension liabilities, helping lift overall funded status. The result was a broad-based improvement across the DB landscape, although plans employing fixed income leverage may have seen more stable or slightly weaker results late in the year.
By year-end, 68% of plans in Mercer’s database reported solvency ratios above 120%, up from 55% at the beginning of 2025. The share of plans with ratios exceeding 100% also rose, climbing from 88% to 92% over the same period.
“Fuelled by tariffs, trade disruptions, and geopolitical risks, the Canadian economy experienced a turbulent 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 based in Toronto.
Monetary policy shifts added another layer of complexity. In October, the Bank of Canada cut its overnight rate to 2.25%, marking the fourth 25-basis-point reduction of 2025. Even so, yields on mid- and long-term bonds increased over the year, further easing actuarial liabilities and supporting funded levels.
Many DB plans now hold meaningful surpluses that act as shock absorbers against future market stress—an advantage that was notably absent during past crises such as the dot-com bust, the global financial crisis and the onset of COVID-19.
As attention turns to the year ahead, risk management will remain front and centre. While surpluses can enable contribution holidays or strategic plan design changes, Mercer cautions that they should be deployed carefully, given how quickly conditions can reverse.
Policy developments may also influence investment decisions. Federal and provincial governments are signalling renewed emphasis on infrastructure and other large-scale economic initiatives, potentially increasing demand for private capital. At the same time, pension funds could face growing pressure to invest domestically, driven by concerns around trade resilience, employment, productivity and ESG priorities.
Even so, Mercer emphasizes that fiduciary discipline must remain paramount. As highlighted in the 2025 Mercer CFA Institute Global Pension Index, pension plans should continue to prioritize their core mandate of delivering promised benefits when evaluating investment opportunities.
“Mechanisms to attract institutional investment into domestic priorities should be incentive-driven,” said Mr. Duce. “As highlighted in the 2025 Mercer CFA Institute Global Pension Index, incentive-based approaches by government encourage capital deployment while enabling institutional investors to prioritize their fiduciary duties when making investment decisions.”
