Canadian pension plans are experiencing significant surpluses, allowing many employers to take contribution holidays, according to a recent report from Mercer (Canada) Ltd. However, experts caution that this prosperous situation may not be sustainable in the long term.
State of Canadian Pension Plans
The median solvency ratio for Canadian pension plans reached 123% at the end of the first quarter of 2026. This figure serves as a key indicator of pension plan health, demonstrating that for every dollar owed to recipients, there is $1.23 available. This data comes from the Mercer Pension Health Pulse (MPHP), which monitors 435 defined-benefit pension plans quarterly.
Trends in Solvency Ratios
- The median solvency ratio has risen from slightly over 80% in 2020.
- It peaked at 132% at the end of 2025.
- Approximately 60% of plans maintained a solvency ratio of 120% or more in early 2026.
- Only 13% of plans reported being in deficit at that time.
This upward trend has been bolstered by strong stock market performance in 2025, contributing to a 7% increase in solvency ratios due to robust equity returns. However, recent market fluctuations, notably linked to geopolitical tensions, have caused some instability.
Contribution Holidays Explained
Contribution holidays can become mandatory under Canadian law when pension plan surpluses exceed specific solvency thresholds. Samantha Allen, a principal at Mercer, notes that employers must pause contributions until surpluses decrease below said thresholds. This pause allows companies the opportunity to manage their finances more conservatively during uncertain economic times.
Drivers Behind Contribution Holidays
Several factors are influencing the trend of contribution holidays besides the plans being overfunded:
- Many employers previously contributed heavily to address deficits and are now taking a break.
- Economic uncertainty has prompted some employers to adopt a more cautious approach, preserving cash flow.
Mercer’s analysis indicates that the contribution holiday trend will likely continue throughout 2026, despite fluctuations in stock market performance and slight declines in investment returns. The pensions landscape is evolving, and stakeholders must remain vigilant in adapting to changing conditions.
