Global Pension Crisis: Financial Times

Since the financial crisis in 2008, many central banks have implemented easier monetary policies and other tools to stimulate economic growth. Due to those efforts, the interest rates have dropped in many countries, in turn reducing investment gains and swelling debt of pension funds. In some extreme cases, such as Sweden and Switzerland, the central bank policy rate falls below zero, or negative rate territory. As the average life expectancy climbs, this issue adds greater pressure to pension funds and their beneficiaries, that is, the large ranks retirees or soon-to-be retirees. Declining interest yields over the past decade have made it more difficult for pension fund managers to fulfill payments. Therefore, pension funds try allocating more funds into nontraditional assets with higher risks, such as private equity or real estate, to earn higher returns. According to International Monetary Fund, this new trend may limit “the traditional role they play in stabilizing markets during periods of stress” because pension funds will have less liquidity to invest countercyclically. Unsustainable practices could kill off some pension plans. – YaleGlobal