Global Aging Reshapes Equity and Bond Investment Logic? Pension "Longevity Bill" Accelerates Accumulation, Equities, Bonds, and Private Equity Welcome Massive Long-term Capital

According to Zhitong Finance APP, as global pension systems are required to make payments for longer periods while the contributor population supporting these payments continues to decline, pension systems are forced to redistribute responsibilities among the government, employers, and individuals, as well as adjust their investment portfolios. In other words, as global population aging intensifies, the duration of pension payments lengthens, and the ratio of workers to retirees continues to fall, the funding and sustainability pressure on pension systems increases. This has driven pension funds to re-examine investment returns, risk tolerance, and liquidity arrangements, while also requiring governments to enhance the long-term sustainability of pension systems through the improvement of retirement systems, immigration policies, and by promoting productivity growth.

The Marsh CFA Institute Global Pension Index 2026, released on October 20, shows that among the 55 systems covered, 43 are in markets where fertility rates are below the generational replacement level of 2.1, and 23 are below 1.5. In developed regions, the expected remaining life expectancy for people aged 65 has increased by 50.9% since 1950, reaching about 20 years. For capital markets, this means global pensions must address two issues: whether long-term assets can cover much longer retirements and whether enough cash is available to pay current benefits on time.

From Retirement Security to Investment Risk: Global Pension Funds Face the Aging Crisis

As life expectancy grows and fertility rates drop, global pension systems are facing a demographic crisis, with the pressure on retirement funding likely to rise continuously. The sustainability of pension payments for future generations is increasingly being called into question.

Pension plans are generally divided into two types: Defined Benefit plans, which promise a predetermined income to retirees, and Defined Contribution plans, where payouts depend on accumulated savings and investment returns.

Aging presents different challenges to each system: with retirees living longer, Defined Benefit plans face ever-increasing liabilities; participants in Defined Contribution plans may run out of savings during their lifetime, putting greater pressure on fund investment performance.

Sebastian Betermier, Executive Director of the International Centre for Pension Management, states that this issue is “very serious and is becoming more pronounced over time.” He notes that some pension fund members have now been retired for nearly half a century, living to 107 or 108 years old.

“The longer the life span, the longer the payment period required of pension funds—this immediately results in additional liabilities,” he said in a media interview. “Think about the costs this actually imposes on the next generation... this is a ticking time bomb.”

The report of the Marsh CFA Institute Global Pension Index (MCGPI) 2026, released last Tuesday, reveals the magnitude of this challenge. Of the 55 pension systems covered, 43 operate in markets where the fertility rate is below the generational replacement level of 2.1 children per woman, and 23 are below 1.5.

Meanwhile, the expected remaining life expectancy at age 65 in developed regions has increased by 50.9% since 1950 to around 20 years, meaning retirement benefits now need to be paid over a much longer period. The potential number of workers able to support the elderly population is also projected to fall substantially.

The MCGPI report states, “As the ratio of workers to retirees continues to decline, raising funds for future pensions and elderly care has become even more critical. Under the current system, truly robust frameworks are few and far between.”

This issue is particularly severe for pay-as-you-go pension systems. These systems rely on current workers’ contributions to pay benefits for current retirees, making them highly vulnerable to shrinking labor forces.

The United States is already experiencing these pressures. According to the latest trustees' report, the Old-Age and Survivors Insurance Trust Fund, which provides retirement and survivor benefits for tens of millions of Americans, is projected to deplete its reserves by Q4 2032.

Fully funded pension plans are also not immune. These plans invest the contributions of workers and employers to pay future retirement benefits.

The MCGPI warns that as members retire and begin claiming benefits, some funds may find that their benefit outflows exceed new contribution inflows, forcing a reassessment of investment strategy and liquidity needs.

The report emphasizes: “Future benefit payouts will exceed contribution or premium income... Such financial pressure will inevitably intensify in the future.”

Demographic pressures are reshaping the investment approaches of pension funds, with some funds taking on greater risks to achieve the returns required to meet growing retirement obligations.

Many funds in their mature stages already have benefit outflows exceeding contribution inflows, making them increasingly reliant on investment income and accumulated assets.

According to a 2025 report by the Australian Prudential Regulation Authority, about one-third of Australia’s superannuation funds recorded negative net natural cash flows over a three-year period, meaning benefit payouts exceeded contribution inflows.

Industry observers note that the pressure to obtain higher returns has led some funds to shift towards higher-risk, more structured investments, including private equity, infrastructure, and private credit.

Betermier stated in a media interview: “You can try to pursue higher investment returns, but this comes with a higher level of risk.”

Jean-Pierre Aubry, Associate Director of State and Local Research at the Center for Retirement Research at Boston College, notes that pension funds are increasingly turning to higher-risk investments, although there is significant variation in the extent of this shift among different markets.

Aubry stated in a media interview: “I think everyone is increasing their risk exposure a bit, within their capacity. As demographics change, costs are rising.”

He pointed out by example that U.S. state and local government pension funds allocate only about 20% of assets to bonds, with most of the remainder invested in equities and private assets.

He added that this allocation means U.S. public pension funds are taking on significantly more investment risk compared to their counterparts in Europe and Canada.

Not all pension managers believe that aging demographics justify greater risk-taking.

David Elia, CEO of Australian pension fund Hostplus, says demographic changes are just one of many factors affecting investment decisions.

He stressed the importance of maintaining diversification across asset classes, regions, and industries, while ensuring potential returns are sufficient to compensate for the risks taken.

Elia also noted that governments can ease demographic pressures through immigration policies and technological advances, and that demographic shifts themselves may create new investment opportunities.

He stated: “I do not underestimate the government’s capability for creativity when dealing with such issues. However, there is no doubt that these problems must be tackled.”

Pursuing High Returns, But Must Also Have Cash on Hand: Is Differentiation in Pension Fund Allocation Inevitable?

Pension dependency on market returns is already evident in asset allocation. Public Plans Database data shows that in 2025, about 42.2% of U.S. state and local pensions are allocated to equities, 21% to fixed income, 13.9% to private equity, and 9% to real estate.

The Australian regulator found that about a third of superannuation funds had negative three-year net natural cash flow ratios, meaning the inflow of contributions was insufficient to cover pension payouts and other outflows. This indicator does not include investment income, so a negative value does not equal a loss or insolvency, but it does increase the fund’s reliance on investment cash income and asset liquidity.

This leads to two investment approaches: some funds seek higher returns through private equity, infrastructure, and private credit; others, with a higher proportion of retirees, need to reduce risk and increase liquid assets available for payments. The Global Pension Index report also explicitly notes that an aging member base may prompt funds to gradually reduce allocation to growth assets. The investment implication here is that long-term expected returns must be matched with the actual timing of cash receipts: if the exit from private assets is delayed or credit assets have slow returns and pensions still need to be paid, the fund may be forced to sell liquid assets in down markets, weakening the future income base.

This adjustment can also impact bond markets. The Dutch central bank previously estimated that pension system reform might see local funds reduce their holdings of government bonds and interest rate swaps with maturities of at least 25 years by 100–150 billion euros. Younger members increase allocations to growth assets, while older members still value steady income but for shorter durations. Thus, investment opportunities brought by pension fund aging must be concretely implemented based on bond maturity, credit quality, and cash flow matching—at present, it cannot be simply inferred that all long-term bonds will benefit or that all risk assets will receive more capital.