World’s Largest Pension Fund Struggles To Make Ends Meet

The world’s largest pension fund is cutting payments and warning that investment growth is set to fall.

The California Public Employee Retirement Scheme – known as CALPERS – is struggling to maintain payments to retired public servants while the value of investments is falling and the scheme is underfunded.

CALPERS looks after pensions for around 3,000 towns, cities and public authorities in California, the state with the largest population in the US.

Fund managers have warned that they are slashing investment return forecasts from 7.5% to 7% over the three years from July 2017 until July 2020 – the first downward adjustment in four years.

Underfunded schemes

CALPERS is concerned that the scheme is 32% underfunded and is calling for public authorities to up their contributions to make good the shortfall or threatens benefits will be cut.

Finance chair Richard Costigan explained that managers are constantly monitoring investment returns.

“This is just the start of the action we need to take,” he said. “We’re are phasing in increased contributions over the next eight years.”

The fund says investment returns were just 0.61% in the past year, adding up to two years of subpar returns.

CALPERS is the largest public sector pension fund, with $290 billion of assets under investment.

$70 trillion pension shortfall

Meanwhile, the global pension deficit gap is an estimated £81 trillion, according to think tank The Geneva Association.

A report blames people living longer and low interest rates mean pension funds must pay out more to members while making less from investments.

Research director Ronald Klein, said: “While longer lives are a tremendous human achievement, their occurrence alongside a widespread and persistent drop in fertility rate and inadequate funding is exerting extreme pressure on an already stressed pension system.”

“There is potential to address the issue but the window of opportunity for reform is closing rapidly.

“As populations in most countries continue to age, the political climate will change with them as they favour policies and governments that keep their existing benefits intact.”

The group says Japan has the largest pension gap and the population that lives the longest.

Mind the pension gap

The figures for the five leading developed economies are:

CountryPension GapPension Gap as % GDP
China$5.3 trillion51%
Japan$9.7 trillion210%
Germany$9 trillion234%
France$5.6 trillion198%
World$41 trillion83%

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