Canadian pension fund performance

In 2006, approximately 30% of the Canadian populace (mostly government and bank employees) where covered by defined benefit pension plans. The relative performance differential between pension plan stock and bond portfolio returns and mutual fund returns is considerable.

Ambachsheer and Bauer study the relative returns of Canadian equity mutual funds and defined benefit plans equity portfolios over the 1996 - 2004 period. The study involved 2781 mutual funds and 636 defined benefit pension plans. Over this period, mutual funds produced a before fee +0.15% return over the benchmark return. However, investment costs (MER, not including any sales charges) averaged 2.75%, thus resulting in a -2.60% net shortfall to benchmark returns.

Over the same 1996 - 2004 period, defined pension funds produced a +1.47% return over benchmark returns, reduced by a 0.25% MER, for a net +1.23% premium return over the benchmark. In the equity sphere, mutual funds lagged pension funds by -3.83%.

Bauer and Kicken (2008) examine bond fund returns over the 1997 -2004 period. Defined benefit plans bond portfolios produced a modest net return of 6.5 basis points over the benchmark return, aided in large part by a 12.4 basis point expense ratio. Over the same period, bond mutual funds lagged benchmark returns by -173.6 basis points. Mutual fund expenses averaged 169.2 basis points.