Global pension funds face demographic crisis as populations age and birth rates fall
Longer lifespans and plummeting fertility rates are straining retirement systems worldwide, pushing funds toward riskier investments to meet growing obligations.
At a glance
- The 2026 MCGPI report shows 43 of 55 pension systems have fertility rates below replacement level, while life expectancy at 65 has risen 50.9% since 1950.
- US Social Security trust fund is projected to run out of reserves by late 2032, and many mature funds already pay out more than they receive in contributions.
- Pension managers are increasing allocations to private equity and credit to boost returns, though some warn this adds investment risk.
Pension systems around the world are confronting a demographic crisis driven by longer lifespans and declining birth rates, threatening their ability to sustain retirement payouts for future generations, according to the 2026 Marsh CFA Institute Global Pension Index (MCGPI) report released last week.
The index covers 55 pension systems, of which 43 have fertility rates below the replacement level of 2.1 children per woman, and 23 have rates below 1.5. Meanwhile, life expectancy at age 65 in more developed regions has risen 50.9% since 1950 to about 20 additional years, meaning benefits must stretch further. The ratio of workers to retirees is also set to decline sharply.
Different pressures on two pension models Defined-benefit plans, which promise a predetermined income, face mounting liabilities as retirees live longer. Defined-contribution plans, where payouts depend on investment returns, risk members outliving their savings. "The higher the longevity, the more years the pension funds have to cover, and so that immediately comes in as an additional liability," said Sebastien Betermier, executive director at the International Centre for Pension Management. He described the situation as a "ticking time bomb" for the next generation.
Pay-as-you-go systems, where current workers fund current retirees, are especially vulnerable. The U.S. Old-Age and Survivors Insurance Trust Fund is projected to exhaust its reserves in the fourth quarter of 2032, according to its latest trustees' report.
Shift toward riskier assets Many mature funds already pay out more in benefits than they receive in contributions. In Australia, about a third of superannuation funds recorded negative natural cash flows over a three-year period, per a 2025 Australian Prudential Regulation Authority report. To close the gap, funds are increasing allocations to private equity, infrastructure and private credit.
"Everybody is shifting a little more risk where they can. The costs are going up with this demographic shift," said Jean-Pierre Aubry of the Center for Retirement Research at Boston College. He noted U.S. public pension funds hold only about 20% of assets in bonds, with the rest in equities and private assets, making them more exposed to investment risk than European or Canadian peers.
Not all managers agree on taking bigger bets. David Elias, CEO of Australian fund Hostplus, emphasized diversification and said governments could mitigate pressures through immigration and technology, while demographic shifts may also create new investment opportunities.
Source: CNBC Top News.
Questions and answers
- Why are pension funds facing a crisis?
- Longer lifespans and falling birth rates mean fewer workers support more retirees for longer periods, increasing liabilities and reducing contributions.
- How are pension funds responding to the demographic shift?
- Many are shifting toward riskier investments like private equity and private credit to generate higher returns needed to cover growing benefit payouts.
- Which pension systems are most vulnerable?
- Pay-as-you-go systems like US Social Security are especially at risk because they rely on current workers' contributions to fund current retirees.
