Pension Funds and Financial Stability

Global Financial Stability Notes, March 6, 2025

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Bibliographic details

• Authors: SNEHA AGRAWAL, Timo Broszeit, Ranjit Singh, Jay Surti, Suzette J Vogelsang
• Published: March 6, 2025
• Series: Global Financial Stability Notes
• DOI: https://doi.org/10.5089/9798229002608.065

Overview and key findings

• Publication title: Pension Funds and Financial Stability
• Authors: SNEHA AGRAWAL, Timo Broszeit, Ranjit Singh, Jay Surti, Suzette J Vogelsang
• Date: March 6, 2025
• Series: Global Financial Stability Notes No 2025/001; Issue: 001; Volume: 2025; Pages: 36
• DOI: https://doi.org/10.5089/9798229002608.065
• Stock No: GFSNEA2025001; ISBN: 9798229002608; ISSN: 2791-3112

• The note examines the growth of the pension fund sector and the potential financial stability implications.
• Historically, pension funds have been viewed as contributors to financial stability because of their long-term and well-diversified liabilities.
• The sector has undergone significant structural shifts accelerated by a prolonged period of low interest rates.
• These shifts have increased the sector’s exposure to traditional risks while introducing emerging risks.
• Growing intra-financial sector interconnectedness and exposure to long-term sovereign bonds are highlighted as material trends.
• The recent transition to higher interest rates is expected to be positive for the pension sector.
• However, the pace and abruptness of the transition have been associated with liquidity stress and contagion risks in some countries.

Risks and channels to financial stability

• Structural shifts driven by prolonged low interest rates:
  • Increased exposure to traditional risks.
  • Emergence of new risks tied to portfolio composition and duration choices.
• Interconnectedness:
  • Growing intra-financial sector interconnectedness increases potential for contagion.
• Market exposures:
  • Elevated exposure to long-term sovereign bonds is noted as a vulnerability.
• Interest-rate transition:
  • Transition to higher interest rates should be positive for pension balance sheets.
  • Rapid or abrupt rate increases have been associated with episodes of liquidity stress and contagion risks in some countries.

Subjects and thematic keywords

• Subject areas: 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

Publication access and formats

• Format noted: Global Financial Stability Notes 2025, 001 (2025)
• The landing page offers a PDF download and indicates availability in multiple formats through the IMF eLibrary.

IMF Global Financial Stability Note (Global Financial Stability Notes No 2025/001) — "Pension Funds and Financial Stability", March 6, 2025.

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