Is global aging reshaping the investment logic for stocks and bonds? Pension "longevity bills" are accelerating, and stocks, bonds, and private markets are set to receive massive long-term capital.

Title context: Is global aging reshaping the investment logic for stocks and bonds? Pension "longevity bills" are accelerating, and stocks, bonds, and private markets are set to receive massive long-term capital. Text: As retirement systems around the world need to pay out for longer, while the population of contributors supporting these payments continues to shrink relatively, the pension system is being forced to redistribute responsibilities among governments, employers, and individuals, and to adjust investment portfolios. In other words, as global population aging deepens, pension payment periods lengthen, and the ratio of workers to retirees continues to decline, the funding and sustained payment pressures on pension systems intensify accordingly, pushing pension funds to re-examine investment returns, risk-taking, and liquidity arrangements, while requiring governments to strengthen the long-term sustainability of pension systems through measures such as improving retirement systems, immigration policies, and promoting productivity growth. The 2026 Marsh CFA Institute Global Pension Index released on October 20 shows that among the 55 systems covered, 43 are in markets with fertility rates below the generational replacement level of 2.1, and 23 are below 1.5; the expected remaining life expectancy of 65-year-olds in developed regions has increased by 50.9% compared with 1950, reaching about 20 years. For capital markets, this means that global pensions must simultaneously solve two problems: whether long-term assets can cover a longer retirement life, and whether current cash can pay benefits on time. From retirement security to investment risk: Global pension funds face an aging crisis As lifespans lengthen and fertility rates decline, global pension systems are facing a demographic crisis, the pressure on retirement funds may continue to increase, and their ability to continue paying pensions to future generations is also being questioned. Pension plans are generally divided into two types: defined benefit plans, which promise retirees a predetermined income; and defined contribution plans, whose payouts depend on accumulated savings and investment returns. Aging brings different challenges to the two types of systems: as retirees live longer, defined benefit plans face increasing liabilities; participants in defined contribution plans may exhaust their savings during their lifetimes, putting greater pressure on fund investment performance. Sebastian Betermier, executive director of the International Centre for Pension Management, said the problem is "very serious, and it becomes more prominent over time." He noted that some pension fund members have been retired for nearly half a century and have reached the age of 107 or 108. "The longer people live, the longer pension funds need to pay, and this immediately adds an extra liability." He said in a media interview, "Think about the cost this actually imposes on the next generation... This is a time bomb." The "2026 Marsh CFA Institute Global Pension Index" (MCGPI) report released last Tuesday revealed the scale of this challenge. Among the 55 pension systems covered by the index, 43 are in markets with fertility rates below the generational replacement level of 2.1 children per woman, and 23 are below 1.5. At the same time, the expected remaining life expectancy of 65-year-olds in developed regions has increased by 50.9% since 1950, reaching about 20 years, meaning retirement benefits now need to be paid for a significantly longer period. The number of potential workers able to support the elderly population is also expected to decline significantly. The MCGPI report noted: "As the ratio of workers to retirees continues to decline, financing future pensions and elderly care becomes more critical. Under current operating arrangements, very few systems are truly solid." This problem is especially severe for pay-as-you-go pension systems. Such systems mainly use contributions from current workers to pay benefits to current retirees, making them particularly vulnerable to a shrinking labor force. These pressures are already evident in the United States. According to the latest trustees report, the Old-Age and Survivors Insurance Trust Fund, which provides retirement and survivors benefits to tens of millions of Americans, is projected to exhaust its reserves in the fourth quarter of 2032. Fully funded pension plans are not immune either. Such plans invest contributions from workers and employers to pay future retirement benefits. MCGPI warned that as members retire and begin receiving benefits, some funds may find that their payouts exceed new contribution income, forcing them to reconsider investment strategies and liquidity needs. The report emphasized: "Future benefit expenditures will exceed contribution or premium income... This financial pressure is bound to increase in the future." Demographic pressures are reshaping how pension funds invest, with some funds taking on greater risk to obtain the returns needed to meet growing retirement payment obligations. Many mature funds already have benefit payouts exceeding contribution income and are therefore increasingly reliant on investment returns and accumulated assets. According to a 2025 report by the Australian Prudential Regulation Authority, about one-third of Australia's superannuation funds recorded negative natural cash flow over a three-year period, meaning benefit payments exceeded contribution income. Industry observers say the pressure to achieve higher returns has prompted some funds to turn to riskier and more structurally complex investments, including private equity, infrastructure, and private credit. Betermier said in a media interview: "You can try to obtain higher investment returns, but that requires taking on a higher level of risk." Jean-Pierre Aubry, associate director of state and local research at the Center for Retirement Research at Boston College, said pension funds are increasingly turning to riskier investments, although the degree of shift varies widely across markets. Aubry said in a media interview: "I think everyone is adding a little more risk-taking within what they can afford. As demographics change, costs are rising." Citing U.S. state and local government pension funds as an example, he noted that these funds allocate only about 20% of assets to bonds, with most of the rest invested in equities and private assets. He said this allocation exposes U.S. public pension funds to significantly higher investment risk than their European and Canadian counterparts. Not all pension managers believe that aging means they should make bigger risk bets. David Elia, chief executive of Australian pension fund Hostplus, said demographic change is only one of many factors affecting investment decisions. He emphasized the need to maintain portfolio diversification across asset classes, regions, and industries, while ensuring that potential returns are sufficient to compensate for the risks taken. Elia also said governments can ease the pressure of population aging through immigration policy, technological progress, and other means, while demographic change itself may also create new investment opportunities. He said: "I do not underestimate the ability of governments to show great creativity in dealing with such issues. But there is no doubt that they must address these problems." Pursuing high returns while ensuring cash availability: Is pension asset allocation bound to diverge? Pensions' reliance on market returns is already reflected in asset allocation. Data from the Public Plans Database show that in 2025 U.S. state and local pensions allocated about 42.2% to equities, 21% to fixed income, 13.9% to private equity, and 9% to real estate. Australia's regulator found that about one-third of superannuation funds had a negative three-year natural cash flow ratio, meaning contribution inflows were insufficient to cover outflows such as benefit payments. This indicator does not include investment returns, and a negative value itself does not equal a loss or insolvency, but it raises the fund's requirements for investment cash income and asset liquidity. This creates two investment orientations: some funds seek higher returns through private equity, infrastructure, and private credit; other funds with a higher proportion of retired members need to reduce risk and increase liquid assets available for payments. The Global Pension Index report also explicitly states that aging membership may prompt funds to gradually reduce allocations to growth assets. The investment implication behind this is that long-term expected returns must match the actual timing of cash inflows: if private asset exits are delayed and credit asset repayments are blocked while pensions must still be paid continuously, funds may sell liquid assets during market downturns, weakening the future earnings base. This adjustment will also affect the bond market. De Nederlandsche Bank previously estimated that the pension system transition could reduce local funds' holdings of government bonds and interest rate swaps with maturities of at least 25 years by about 100 billion to 150 billion euros: younger members increase allocations to growth assets, while older members continue to prioritize income stability, but the required asset maturities are relatively shorter. Therefore, the trading opportunities brought by pension aging need to be specifically translated into bond maturities, credit quality, and cash flow matching; at present, it cannot simply be inferred that all long bonds will benefit, or that all risk assets will receive incremental capital.