Governments eye citizens’ pension savings to ease debt strain
As fiscal pressures deepen from aging populations and pandemic-era debt, governments are increasingly tapping into a tempting source of capital: citizens’ retirement savings. Pension fund assets across the Organization for Economic Cooperation and Development have more than tripled since 2003, reaching $63.1 trillion in 2024, according to the Mercer CFA Institute Global Pension Index. That enormous growth has drawn fresh political attention at a time when most countries are battling debt overhangs, making that capital look irresistible. However, the trouble starts when governments interfere and tell funds to invest too much at home, which breaks the delicate balance that fund managers have calculated between risk and reward, said Sébastien Betermier, executive director at the International Centre for Pension Management (ICPM). “At a time when pension funds have become really big, and the governments themselves are cash-constrained,” Betermier said. “And it’s becoming increasingly tempting for governments to go: maybe I can redirect it for other policy goals.” He described the trend as “a kind of pension fund nationalism.” Politicalization of pension funds Global debt remains near record highs , exceeding 235% of global GDP, according to the International Monetary Fund. The ongoing deficit largely stems from lingering pandemic-related costs, including subsidies and social programs, as well as rising interest payments. I think of it as a kind of pension fund nationalism, in a way. International Centre for Pension Management (ICPM) Sébastien Betermier Governments are increasingly considering the use of policy nudges and mandates to steer savings toward domestic priorities,” Betermier said, noting the trend is visible in many countries and regions such as Canada, the UK, Europe, and Australia. For example, Australian Treasurer Jim Chalmers recently urged the country’s $4.3 trillion retirement savings system to invest more in the country’s housing and infrastructure . In April, a group of lawmakers from Japan’s ruling Liberal Democratic Party asked the country’s top public pension fund to increase its investments in domestic private equity and venture capital. Governments in the United Kingdom and Malaysia have also urged domestic pension funds to invest more in national priorities such as infrastructure and fast-growing companies. The investment climate has been politicized in some jurisdictions, said Gordon Clark, Professor at the University of Oxford’s Smith School of Enterprise and the Environment. “Sometimes you see the influence of that politicization extending to what their public-sector pension fund invests in or doesn’t invest in—and I think that’s very, very problematic,” said Clark, who specializes in pension investment strategies. The influence of governments on investment decisions has also extended to private pension funds in many instances, said Mercer analysts. “Increased global uncertainty and the increasing size of pension fund assets are now leading some governments to consider encouraging more domestic investment by pension funds in areas of national priority for the longer-term benefit of society,” the Mercer report said. Risks of ‘breaking’ the balance? While it is inevitable that government policies will affect investment decisions, direct interference could potentially limit diversification or lead to a fund becoming overly exposed to local economic risks, analysts warned. Restrictions on pension funds’ investment policies can cause a lack of diversification. Mercer “Restrictions on pension funds’ investment policies can cause a lack of diversification, price distortions, asset price bubbles and liquidity constraint,” the Mercer report noted. There is also a risk that investment decisions could turn into political decisions instead of financial ones, like propping up local industries, funding state projects, or supporting short-term political goals. Examples from South Korea and China underscore those risks. In 2015, South Korea’s state-run National Pension Service (NPS), the largest shareholder in Samsung C & T, became the swing vote in approving a controversial merger between Samsung C & T and Cheil Industries amid allegations of political pressure . The deal, seen as crucial to cementing family control over the Samsung empire, was fiercely opposed by minority investors, including Elliott Management and Mason Capital, who argued the terms undervalued C & T shares. Later investigations suggested government officials had pressured the NPS to back the merger . The fund’s stake later lost hundreds of billions of won in value . The 2006 Shanghai pension fund scandal also showed how political objectives can compromise the responsible management of public money. Investigators found that roughly 3.2 billion yuan ($400 million) from the city’s social security fund had been diverted into speculative real estate and toll road projects tied to local officials’ prestige agendas, leading to multiple arrests and a public outcry that ultimately prompted China to tighten oversight of pension investments. These episodes underscore how political influence over a public pension’s investment decisions can override professional judgment and expose retirement savings to reputational and financial risk. “You’re breaking a system that has led to that careful calibration of risk and return, which is so essential in order to get the pension fund system to actually work in the long run,” said ICPM’s Betermier. Political appointments to pension leadership can also weaken professionalism and investment quality, said the University of Oxford’s Clark. “Political influence extends as far as what you actually invest in or don’t invest in,” noted Clark, who added that changes in government can cause abrupt shifts in investment strategy. Industry veterans acknowledged that protecting the independence of pension funds is key to maintaining public trust. “It is critical that the community have long-term confidence in its pension system,” Mercer said. “[It] is not helped when governments, either deliberately or accidentally, increase the price volatility in the capital markets or restrict the range of investments available to the pension funds.”
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