Funded pensions under the conditions of consistently low and negative interest rates

How to Cite
Kulikova T.Y. Funded pensions under the conditions of consistently low and negative interest rates. Population. 2019. Vol. 22. No. 4. P. 51-61. DOI: https://doi.org/10.19181/1561-7785-2019-00038 (in Russ.).

Abstract

developed countries sovereign bonds yields are going down, and this trend has been going on for a few decades already. Currently, in most countries whose sovereign debt is considered safe even long-term government bonds' nominal yields are close to zero (or even negative), and their real (i.e. inflation-adjusted) yields are even lower. This means that today there are virtually no safe assets in which pension funds could invest their clients' retirement savings with reasonably high rate of return. Therefore pensions funds in order to provide even barely satisfactory returns to their cli­ents turn to riskier investment strategies. As a result, funded pensions are no longer a reliable finan­cial protection for a persons' life after retirement; rather, it is just another type of speculative assets, which in case of good luck may bring a good return sufficient for a comfortable life after retirement, but in case of bad luck in investment or in case of a large-scale financial crisis, a significant part of the person's retirement savings will be lost. In this case, if the funded component constitutes a large part of the person's pension benefits structure, such person may end up without enough money for mere survival. Such situation is unacceptable for pension system, so state pension system should be of the pay-as-you-go (PAYG) type, while funded pensions can only be a voluntary supplement to people's PAYG pensions.
Keywords:
funded pensions, government bonds, returns on investment, negative interest rate policy

Author Biography

Tatiana Yu. Kulikova, Steklov Mathematical Institute, RAS
кандидат физико-математических наук, научный редактор журнала «Математические заметки»

References

Reversing pension privatization: Rebuilding public pension systems in Eastern European and Latin American countries (2000-18). ESS Working Paper #63.31 October 2018. Available at: https://www.ilo.org/secsoc/information-resources/publications-and-tools/Workingpapers/WCMS_648639/ lang—en/index.htm (Accessed: 10 October 2019).



Mesa-Lago C. An appraisal of a quarter-century of structural pension reforms in Latin America. CEPAL Review 84. December 2004 (Santiago de Chile. UN ECLAC).



Pensions at a Glance 2017: OECD and G20 Indicators. 05 December 2017. Available at: https://www.oecd.org/unitedstates/PAG2017-USA.pdf (Accessed: 20 October 2019).
Citation Formats
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APA
Kulikova, T. Y. (2019). Funded pensions under the conditions of consistently low and negative interest rates. Population, 22(4), 51-61. https://doi.org/10.19181/1561-7785-2019-00038
Section
QUALITY, STANDARDS AND CONDITIONS OF POPULATION LIFE