Defined-benefit pension plans in Canada have achieved their strongest financial health on record, propelled by exceptional stock market performance throughout 2025, according to a new analysis from consulting firm Mercer (Canada) Ltd.
Record-Breaking Solvency Ratios
The median solvency ratio for the 471 defined-benefit pension plans tracked in Mercer's Pension Health Pulse reached 132 per cent as of December 31, 2025. This marks the highest level since Mercer began collecting this data in 2008. The ratio indicates that for every dollar of pension benefits promised to members, plans now hold an extra 32 cents in assets.
Brad Duce, a principal at Mercer in Toronto, attributed the historic peak directly to equity markets. "The vast majority of the increase has been due to the strong equity returns in the year," Duce stated, highlighting the powerful effect of stock gains on pension fund balances.
Market Performance Fuels Growth
The report points to specific blockbuster returns that bolstered pension portfolios. The S&P/TSX composite index closed 2025 up 28 per cent, notably outperforming the U.S. benchmark S&P 500, which rose almost 17 per cent. European markets also contributed significantly, with the Stoxx 600 index posting a 16 per cent gain—its largest annual increase since 2021.
Overall, the median solvency ratio climbed seven percentage points over the course of the year, with nearly half of that improvement occurring in the final quarter alone. This surge has dramatically improved the security landscape for plan members.
Widespread Improvement in Plan Health
The robust returns have translated into broader security across the pension landscape. Mercer's data shows that 68 per cent of defined-benefit plans now boast a solvency ratio above 120 per cent, a substantial jump from 55 per cent at the start of 2025.
Furthermore, the share of plans considered fully funded—with a solvency ratio exceeding 100 per cent—rose to 92 per cent from 88 per cent over the same period. The plans in Mercer's index represent a cross-section of the Canadian economy, including public, private, and non-profit sectors, with approximately 80 per cent originating from the private sector.
This improvement continues a positive five-year trend. Mercer notes that pension plan funding has steadily strengthened, and the "significant surpluses" accumulated will act as crucial security buffers heading into 2026. However, the firm cautions sponsors against complacency, warning that surpluses can evaporate quickly if market conditions reverse.
"The current cushions allow plan sponsors to prepare for potential unfavourable scenarios and adapt their risk-management frameworks accordingly," advised Duce. He added that despite a turbulent economic year marked by tariffs, trade disruptions, and geopolitical risks, diversification and strong risk management have kept DB pension plans generally secure for Canadian workers and retirees.
According to Statistics Canada data from June 2025, about 7.2 million Canadians are covered by employer- or union-sponsored pension plans, including defined-benefit, defined-contribution, and hybrid models. Defined-benefit plans account for roughly two-thirds of these sponsored pensions.
