Key Takeaways
- • Mercer reports the median solvency ratio of Canadian defined benefit pension plans reached 132% as of December 31, 2025, a 7% increase during 2025, including 3% in the final quarter.
- • The share of plans with solvency ratios above 120% rose to 68% from 55% at the start of 2025, while plans above 100% improved from 88% to 92%.
- • Brad Duce, Mercer Principal in Toronto, said diversification and risk management have kept DB plans generally secure from a solvency perspective despite a turbulent Canadian economy.
- • Mercer advises plan sponsors to focus on delivering pension promises when considering pressure to direct capital toward domestic priorities, and says incentive-based government mechanisms best preserve fiduciary duties.
Summary
Canadian defined benefit (DB) pension plans enter 2026 in a strong financial position, according to Mercer, which released its findings on January 5, 2026. The Mercer Pension Health Pulse, tracking 471 plans in Mercer's Canadian database, shows the median solvency ratio at 132% as of December 31, 2025. The firm attributes the improvement to strong equity returns, modest fixed income returns, and a slight decrease in actuarial liabilities as interest rates rose. Plans using fixed income leverage may have seen stable or lower solvency ratios over the final quarter.
The distribution of plan health also improved. Mercer reports that 68% of plans now have solvency ratios above 120%, up from 55% at the start of the year, and the share above 100% rose from 88% to 92%. Mercer notes that DB plans demonstrated resiliency despite a turbulent year for the Canadian economy, which it attributed to tariffs, trade disruptions, and geopolitical risks. The Bank of Canada cut its overnight rate four times in 2025 by 25 basis points each, to 2.25% from 3.25% at the end of 2024, and held it unchanged after October 29.
Mercer cautions that sponsors should monitor economic volatility in 2026. Surpluses can fund contribution holidays or plan design changes, but the firm notes the financial health of some plans has deteriorated quickly in the past, and cites the dot-com bubble, the global financial crisis, and COVID as periods of stress that hit plans already in weaker positions.
Mercer also highlights pressure on Canadian pension funds to invest more in the domestic economy as federal and provincial governments pursue infrastructure and "nation-building" projects. Brad Duce said incentive-driven mechanisms are preferable, and that such approaches allow institutional investors to meet fiduciary duties. Mercer recommends that plans continue to prioritize their primary mandate of delivering pension promises, as recommended in the 2025 Mercer CFA Institute Global Pension Index.
The distribution of plan health also improved. Mercer reports that 68% of plans now have solvency ratios above 120%, up from 55% at the start of the year, and the share above 100% rose from 88% to 92%. Mercer notes that DB plans demonstrated resiliency despite a turbulent year for the Canadian economy, which it attributed to tariffs, trade disruptions, and geopolitical risks. The Bank of Canada cut its overnight rate four times in 2025 by 25 basis points each, to 2.25% from 3.25% at the end of 2024, and held it unchanged after October 29.
Mercer cautions that sponsors should monitor economic volatility in 2026. Surpluses can fund contribution holidays or plan design changes, but the firm notes the financial health of some plans has deteriorated quickly in the past, and cites the dot-com bubble, the global financial crisis, and COVID as periods of stress that hit plans already in weaker positions.
Mercer also highlights pressure on Canadian pension funds to invest more in the domestic economy as federal and provincial governments pursue infrastructure and "nation-building" projects. Brad Duce said incentive-driven mechanisms are preferable, and that such approaches allow institutional investors to meet fiduciary duties. Mercer recommends that plans continue to prioritize their primary mandate of delivering pension promises, as recommended in the 2025 Mercer CFA Institute Global Pension Index.
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