FSRA's Q1 numbers dip from a record 124 percent as weak returns and the war in Iran weigh in
Ontario's defined-benefit pension plans slipped to 122 percent solvency in Q1 2026, snapping two record-high quarters at 124 percent amid market uncertainty.
The Financial Services Regulatory Authority of Ontario released its Q1 2026 Solvency Report on April 23, 2026, with figures projected as at March 31, 2026. The median solvency ratio fell two percentage points from December 31, 2025, ending a stretch in which Ontario DB plans had held a record-high 124 percent for two consecutive quarters.
The share of plans projected to be fully funded on a solvency basis dipped to 90 percent from 92 percent at the close of 2025. Plans with a solvency ratio below 85 percent held steady at 2 percent.
In its accompanying May 14, 2026 announcement, FSRA emphasized that fundamentals remain solid. "Solvency levels remain strong overall, but the recent decline highlights the impact of current economic headwinds and the importance of staying forward-looking," said Andrew Fung, FSRA's Executive Vice President, Pensions. The report attributed the soft quarter to inflationary pressures, geopolitical tensions, and slowing global growth.
For advisors and consultants working with plan sponsors, the underlying detail tells the story. Average net investment returns in Q1 2026 came in at just 0.3 percent (0.5 percent gross). A balanced fund of 60 percent equities and 40 percent bonds - the kind of mix many sponsors anchor to - would have returned -0.1 percent for the quarter, weighed down by poor performances from the MSCI World Equity Index at -1.8 percent and the S&P 500. The S&P Listed Private Equity Index returned -15.3 percent in Canadian dollar terms. Canadian equities did the heavy lifting, with the S&P/TSX Total Return Index up 3.9 percent.
On the liability side, solvency discount rates moved only modestly. The non-indexed commuted value rate for the select period dropped 10 basis points, while the ultimate period rate ticked up 10 basis points; the non-indexed annuity purchase rate fell 9 basis points. The net effect was a small bump in pension liabilities for most plans.
The market backdrop was unsettled. Energy markets were volatile, with WTI crude oil up 83 percent in Canadian dollar terms over the quarter amid the conflict in Iran. The Canadian dollar fell 1.4 percent against the US dollar. The Bank of Canada's policy rate held at 2.25 percent, while the US Federal Funds target range stayed at 3.5 to 3.75 percent. Canadian CPI inflation eased to 1.8 percent in February, down from 2.4 percent in December 2025; the US CPI index climbed 3.3 percent for the 12 months ending March 2026.
FSRA's note to sponsors was direct. Solvency surpluses can deteriorate rapidly under adverse markets, and plans currently in surplus should exercise prudence, recognizing that elevated positions may be temporary. FSRA continues to encourage stress testing, modelling, and disciplined risk management.
Separately, the Government of Ontario has doubled the monthly guarantee limit of the Pension Benefits Guarantee Fund, raising it from $1,500 to $3,000 per month for PBGF-eligible plans. The new ceiling took effect on March 26, 2026, for defined-benefit and combination DB/DC plan windups on or after that date. A related consultation on Regulation 909 would update reporting requirements to mirror the higher cap, with proposed changes targeted to take effect on July 1, 2026.
The full text of the Q1 2026 Solvency Report and the May 14 pension update is available at www.fsrao.ca.
