Occupational Pensions in 2024: Rising Pressures and Long-Term Risks

The occupational pensions sector faced mounting challenges in 2024 as inflationary pressures, market volatility, and demographic shifts created headwinds for both employers and employees. With many plans heavily invested in domestic mutual funds, the industry remains vulnerable to contagion risks that could impact funding and long-term sustainability.

Inflation and Contribution Pressures

Potentially higher inflation, driven by supply chain disruptions and subdued demand, could erode company revenues, making it harder for some employers to meet the required contribution rates for pension plans. This raises the risk of more plans slipping into going-concern deficits.

Mutual Fund Concentration Risk

Around 39% of total pension plan assets are invested in local mutual funds. For smaller plans, more than 50% of investments are concentrated in just three large domestic funds. This reliance creates contagion risk, meaning financial stress in one fund could spread quickly across multiple pension plans.

Market Volatility Threats

Geopolitical tensions and macroeconomic shocks could lead to declines in asset values, lower investment returns, and shrinking asset prices. Combined with high administrative fees, these pressures could widen the gap between pension assets and liabilities, threatening plan solvency.

Sector-Specific Vulnerabilities

Pension plans tied to sectors with direct exposure to macroeconomic shocks, such as tourism and services, are at greater risk. These sectors have historically accounted for most pension plan wind-ups between 2020 and 2024, and continued instability could trigger further terminations.

Defined Benefit Sustainability Concerns

Defined-benefit plans, which make up about half of all pension assets, promise guaranteed payouts but face growing sustainability challenges. An aging workforce and slower-than-expected growth increase the risk of underfunding, pushing some employers toward defined-contribution plans where payouts depend on contributions and investment performance.

At a Glance: Occupational Pensions in 2024

• Inflation pressures could make contributions harder to maintain.
• 39% of assets in local mutual funds, small plans are especially exposed.
• Market volatility could reduce returns and widen funding gaps.
• Tourism and service sector-linked plans face higher wind-up risk.
• Defined-benefit plans under strain from aging demographics and slower growth.

Read more in the 2024 Financial Stability Report. Click here to download.