Rising bond yields more than offset negative investment returns, pushing median solvency to 132 per cent
Canadian defined benefit pension plans closed the third quarter of 2026 at a new all-time solvency high, with higher interest rates driving a sharp reduction in pension liabilities that more than compensated for slightly negative investment returns during the period.
According to the Marsh Pension Health Pulse - a tracker that measures the median solvency ratio of the approximately 435 DB plans in Marsh's Canadian database - the median solvency ratio reached 132 per cent as of September 30, 2026. That figure represents a four-percentage-point gain over the second quarter and surpasses the previous record set at the start of this year.
The result underscores a broader pattern of improvement in Canadian DB plan funding. Canadian DB pension plans posted a five-percentage-point improvement in the second quarter of 2026 when the median solvency ratio reached 128 per cent, driven primarily by robust investment returns.
How interest rates are reshaping DB funding
The Bank of Canada held its overnight rate steady at 2.25 per cent for the third consecutive quarter in 2026.
Despite that stability at the short end, yields on long-term Government of Canada bonds climbed steadily through the July-to-September period, reaching levels not seen since 2023. Higher long-term yields reduce the present value of pension liabilities, which is calculated by discounting future benefit payments, making it the dominant force behind this quarter's solvency improvement even as investment portfolios delivered modest negative returns.
At quarter-end, 69 per cent of Canadian DB pension plans had a solvency ratio of 120 per cent or more, and 89 per cent sat above the 100 per cent fully funded threshold. Approximately 11 per cent of plans remain in a deficit position, Marsh reported.
"Canadian defined benefit pension plans continue to show strong resilience despite ongoing market and geopolitical volatility," said Brad Duce, a Principal at Marsh based in Toronto. "Plan sponsors can use this period of strength to review risk, consider de-risking options with an aim of reinforcing their funding policies' position."
What plan sponsors should do with the surplus
The current funding environment hands plan sponsors a range of options they have not had for much of the past two decades. Canadian DB plans entered 2026 with record solvency cushions and growing strategic flexibility and that window has only widened since.
Marsh's report outlines several paths sponsors can take. Plans may choose to stress-test their portfolios against adverse economic scenarios, adopt additional risk controls, or offload exposure by purchasing group annuities from insurers - a transaction that transfers both investment risk and longevity risk to a third party. Adjusting funding policies to regulate the use of surplus assets - whether for contribution holidays, benefit improvements, or drawdowns - is also on the table.
Separately, Marsh's 2026 Global Asset Owner Barometer found that 66 per cent of Canadian asset owners planned to increase their infrastructure allocations, replacing some of the US equity exposure they have been trimming. That kind of asset mix shift can be advanced more decisively when solvency ratios provide a meaningful buffer.
Whatever strategy sponsors pursue, Marsh cautioned that fiduciary duties must remain central to every decision. The purpose of a pension plan is to pay benefits to members at a reasonable cost and any use of surplus needs to be evaluated against that core mandate.
Advisors watching the de-risking window
For wealth management professionals advising plan sponsors, the current environment points to an unusually clear opportunity. With plan funding at levels that give sponsors genuine strategic latitude, conversations about de-risking, liability-driven investing, and annuity purchases are increasingly moving from theoretical to practical.
The Marsh data covers plans across every industry and across public, private, and not-for-profit sectors in Canada, making it one of the broader snapshots of DB plan health available nationally. The next Pension Health Pulse will cover the period ending December 31, 2026.
