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

Global Pension Crisis: Financial Times

Falling interest rates threaten pension funds and secure retirement – options include hiking contributions, reducing payouts, pursuing government subsidies
Josephine Cumbo and Robin Wigglesworth
Tuesday, November 26, 2019

“We just have to explain to millennials that their parents might have to move back in with them.” Christopher Ailman Chief Investment Officer California State Teachers’ Retirement System

Read the article from the Financial Times about a global pension crisis.

Josephine Cumbo is the pensions correspondent for Financial Times, covering all aspects of corporate and personal pensions. Robin Wigglesworth is the Financial Times’  New York-based US markets editor. He is in charge of coverage of financial markets and asset management across the Americas.

Central Bank Policy Rate 2017 	2008 Canada	2% Switzerland; 1% Australia	4% UK	2% US	0% Sweden	2%

Race to bottom: Developed countries try low interest rates to stimulate economies and encourage consumer spending, but many have aging populations that worry about retirement (Source: IMF)

Aging populations: Wealthy nations with low fertility rates have a high median age, with fewer workers aged 15 to 64 per retiree who can contribute to pension and retirement funds (Source: World Bank and World Health Organization)

Private sector	60.18, 15.34, 41.3	 Public sector 15.77, 14.63, 1.14

Imbalances: Not all US workers have retirement plans, and declining interest rates lead to pursuit of riskier investments, increased contributions from workers, lower payments for retirees or government subsidies (Source: Pension Rights Center and Bureau of Labor Statistics)

US Pension Woes The US Pension Benefit Guaranty Corporation and its Multiemployer Pension Program insures the pensions of 10.8 million Americans and could become insolvent by 2026.   The program posted a record deficit $65.2 billion – mostly due to interest rate changes that drive up value of PBGC’s future payments to failed plans.

(Source:   Pension Benefit Guaranty Corporation’s Fiscal Year 2019 Annual Report)

© The Financial Times Limited 2019. All rights reserved.

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