The International Monetary Fund has published an assessment of pension funds’ growing financial stability role, highlighting vulnerabilities from leverage, illiquid investments, currency mismatches, concentrated exposures and links to other financial institutions. Global pension savings reached USD 63.1 trillion at the end of 2023, equivalent to 98% of combined gross domestic product across Organisation for Economic Co-operation and Development members. While higher interest rates have improved many defined benefit plans’ funding positions, abrupt rate moves have also generated margin calls, liquidity stress and contagion risks. The note finds that fragmented supervision, inconsistent valuation practices and limited data on investments, derivatives and securities financing transactions constrain systemic risk analysis. It recommends giving pension supervisors an explicit financial stability objective where the sector is significant, including them in macroprudential bodies and strengthening coordination and data sharing with central banks and other authorities. Supervisors should also require proportionate, granular and sufficiently frequent reporting, enhance governance and risk management standards, and monitor liquidity risks more closely. The note recommends risk-based capital regimes for large defined benefit sectors and broader use of solvency stress tests, projections of defined contribution pension values, liquidity analysis, reverse stress tests and contagion analysis.

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