In a market where every percentage point matters, pension plans in Canada are arriving at a rare moment of comfort. For some employers, that comfort is turning into a contribution holiday, a pause that reflects stronger funding levels but also leaves open a harder question: how long can the buffer hold?
Why are some employers pausing pension contributions?
Mercer Canada says the shift is being driven by growing surpluses. Samantha Allen, a principal at Mercer, said those surpluses have been building over the past couple of years, and when they become large enough, some employers find themselves in a position where a contribution holiday is mandatory.
Under the Canadian Income Tax Act, that pause can be required when the surplus in a plan reaches a certain solvency threshold. At that point, employers must stop contributing and stay restricted until the surplus falls below the level set by the rule.
The current median solvency ratio for the Mercer Pension Health Pulse was 123 per cent at the end of the first quarter of 2026. In simple terms, that means for every dollar of pension owed to recipients, $1. 23 is available.
What does the latest pension data show?
The Mercer Pension Health Pulse tracks the assets and liabilities of 435 defined-benefit plans on a quarterly basis. Its median solvency ratio has risen steadily since 2020, when it stood at a little more than 80 per cent, and it reached a peak of 132 per cent at the end of last year.
The rise was helped by strong stock market performance in 2025, when the solvency ratio increased by seven per cent on the back of solid equity returns. Even so, Mercer said the first quarter of 2026 brought a small step back. Almost 60 per cent of plans still posted a solvency ratio of 120 per cent or more, while 13 per cent were in deficit. That compared with 68 per cent of plans above the 120 per cent mark at the end of 2025.
Mercer attributed the dip to recent valuations and the contribution holidays, and expects that trend to continue through 2026.
How does market uncertainty affect pension health?
The timing matters. Mercer said pension health can move quickly during crises, and Allen warned that geopolitical upheaval and market volatility can affect both assets and liabilities. A one-year contribution holiday may not have an immediate impact, but longer pauses combined with a market downturn could weaken the current buffer many plans now have.
Brad Duce, a principal at Mercer, said some employers may simply be recovering after years of putting in money during deficit periods. Others, he said, may be using the current surplus to manage cash flow more conservatively while uncertainty remains in the economy. That is where the current pension debate becomes less abstract: a stronger balance sheet gives breathing room, but it also creates temptation to stop contributing while conditions still look favorable.
What comes next for pension plans and employers?
For now, the story is one of resilience mixed with caution. The plans Mercer tracks are still in strong shape overall, but the company’s warning is clear: recent gains do not guarantee stability. A pension surplus can soften pressure today and disappear faster than many workers expect if the market turns.
That is why the next phase matters. Employers weighing contribution holidays are balancing present-day cash needs against future obligations. Workers and retirees, meanwhile, are left watching the same numbers and hoping the cushion remains large enough if volatility returns. The pension story in Canada may look healthy on paper, but its durability will depend on what happens when the market stops cooperating.
