Global Financial Stability Notes

Pension Funds and Financial Stability

By SNEHA AGRAWAL, Timo Broszeit, Ranjit Singh, Jay Surti, Suzette J Vogelsang

March 6, 2025

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SNEHA AGRAWAL, Timo Broszeit, Ranjit Singh, Jay Surti, and Suzette J Vogelsang. "Pension Funds and Financial Stability", Global Financial Stability Notes 2025, 001 (2025), accessed April 15, 2025, https://doi.org/10.5089/9798229002608.065

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Summary

This Global Financial Stability Note examines the growth of the pension fund sector and the potential financial stability implications. Historically, pension funds have been seen as a contributor to financial stability because of their long-term and well-diversified liabilities. However, the sector has undergone significant structural shifts accelerated by a prolonged period of low interest rates, increasing its exposure to traditional risks while introducing emerging risks; this is reflected in growing intra-financial sector interconnectedness and exposure to long-term sovereign bonds. The recent transition to higher interest rates should be positive for the pension sector, albeit its pace and abruptness has been associated with liquidity stress and contagion risks in some countries.

Subject: Expenditure, Financial regulation and supervision, Financial sector policy and analysis, Financial sector stability, Labor, Liquidity risk, Pension spending, Pensions

Keywords: Asset-liability duration mismatch, Assets, Financial sector stability, Financial Stability, Global, IMF Library, Liquidity risk, Major pension fund sector, Major pension savings market, Pension Funds, Pension Plans, Pension spending, Pensions, Risk analysis, Risks, Structural liquidity

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