Jan-Pieter Jansen, a 77-year-old retiree from the Netherlands, had high hopes for a worry-free retirement after having saved diligently into a pension during his working life.
But Jansen, a former manager in the metal industry, has been forced to reappraise his plans after receiving notice from his retirement scheme, one of the Netherlands’ biggest industry-sector funds, of plans to cut his pension by up to 10%. Understandably, the news has hit like a sledgehammer.
Jansen is not alone in experiencing pension pain. Tens of millions more pensioners and savers around the world are facing the same retirement insecurity, as plunging interest rates since the financial crisis wreak havoc on the funding of schemes. As average life expectancy increases, pensions have become a defining political issue in countries as diverse as Russia, Japan and Brazil.
“Their house is on fire,” says Alex Veroude, chief investment officer for the U.S. at Insight Investment, which manages money on behalf of many pension funds. “And rates can and probably will go lower from here. Even if the house is on fire, it’s still only the first floor. We think it can hit the second and third floor as well.”
There may even be more systemic consequences. Last month the International Monetary Fund warned in its annual report on global financial stability that the rush by pension funds into “illiquid” assets will hamstring “the traditional role they play in stabilizing markets during periods of stress,” as they will have less money available to scoop up bargains.
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