OTTAWA (Reuters) - The solvency of Canadian private pension plans will take a hit by year-end if the current turmoil on financial markets persists, Canada’s banking regulator said on Wednesday.
Julie Dickson, who heads the Office of the Superintendent of Financial Institutions (OSFI), said pension plans that she regulates were 90 percent funded as of June, which she described as “not bad”.
However, equity markets have fallen hard since then, while already low bond yields have retreated further.
“We’ll see what happens at the end of the year. I think that markets are hard to predict, they could bounce back. No one knows where interest rates are going to go, so I wouldn’t write off plans yet,” she told the Senate Standing Committee on Banking, Trade and Commerce.
Along with weak markets, pensions are under pressure from other factors, such as longevity.
“People are living longer, that means it’s more expensive for sponsors of pension plans,” she said.
As Canada’s banking regulator, OSFI is responsible for implementing so-called Basel III banking reforms that were drawn up in response to the 2008 financial crisis.
Dickson said she has told Canadian banks they should be prepared to meet the news standards, which toughen rules on how much capital and liquidity they must hold, by the first quarter of 2013 rather than 2019 as laid out by the agreement.
“Canadian banks are currently well-positioned to meet or exceed this expectation,” she said.
A number of banks have said they already meet the requirements and analysts expect all the country’s banks will have little difficulty meeting the standards.
Dickson also said the regulator has been emphasizing internationally that capital rules must be accompanied by “intensive supervision” in order to be effective.
Reporting by David Ljunggren, additional writing by Cameron French in Toronto; editing by Rob Wilson