As fiscal pressures from aging populations and pandemic-era debt intensify, governments are increasingly tapping into an attractive source of funding: people’s retirement savings. Pension fund assets across the Organization for Economic Co-operation and Development have more than tripled since 2003, reaching $63.1 trillion in 2024, according to the Mercer CFA Institute Global Pension Index. Its huge growth has drawn renewed political attention as most countries grapple with debt overhangs and capital looks attractive. But the problem begins when governments step in and tell funds to invest too much in their countries, upsetting the delicate balance that fund managers have calculated between risk and return, said Sébastien Betelmier, executive director of the International Center for Pension Management (ICPM). “At a time when pension funds are getting so big and governments themselves are cash constrained,” Betelmier said. “And it’s becoming increasingly attractive for governments to address this policy. Maybe they can channel it into other policy goals.” He described the trend as “a kind of pension fund nationalism.” The politicization of pension funds According to the International Monetary Fund, global debt remains near record levels, exceeding 235% of global GDP. The continued deficit is mainly due to lingering pandemic-related costs such as subsidies and social programs, as well as increased interest payments. In a sense, I think this is a type of pension fund nationalism. Sébastien Betelmier, International Center for Pension Management (ICPM) “Governments are increasingly considering the use of policy nudges and mandates to steer savings domestically,” Betelmier said, noting that the trend is visible in many countries and regions, including Canada, the UK, Europe and Australia. For example, Australia’s Finance Minister Jim Chalmers recently urged the country’s $4.3 trillion retirement savings system to invest more in domestic housing and infrastructure. Gordon Clark, a professor at Oxford University’s Smith School of Enterprise and Environment, said that in April, a group of parliamentarians from Japan’s ruling Liberal Democratic Party called on domestic pension funds to increase investment in domestic private equity and venture capital, while the British and Malaysian governments were also calling on domestic pension funds to increase investment in national priorities such as infrastructure and fast-growing companies. “The influence of politicization can extend to what public sector pension funds invest or not invest in, which I think is very problematic,” said Clark, who specializes in pension investment strategies. “Government influence on investment decisions often extends to private pension funds as well,” Clark said. “With increasing global uncertainty and the size of pension fund assets, some governments are now considering increasing domestic investment by pension funds.” The Mercer report said: “What are the risks of ‘upsetting’ the balance? It is inevitable that government policy will influence investment decisions, but direct intervention could potentially limit diversification or over-expose funds to local economic risks. Restrictions on pension funds’ investment policies could cause a lack of diversification.” Mercer warned: “Restrictions on pension funds’ investment policies could cause diversification, price distortions, asset price bubbles and illiquidity.” “There is also a risk that investment decisions become political rather than financial decisions, such as developing local industry, funding national projects, or supporting short-term political goals. Examples from South Korea and China highlight these risks. In 2015, South Korea’s state-run National Pension Service (NPS), Samsung C&T’s largest shareholder, was the swing vote to approve the controversial merger between Samsung C&T and Cheil Industries.” Alleged political pressure The deal, seen as critical to strengthening the family’s control over the Samsung empire, was fiercely opposed by minority investors who argued that its terms undervalued C&T stock.The 2006 Shanghai pension fund scandal also showed how political objectives can undermine the responsible management of public funds. Investigators revealed that about 3.2 billion yuan ($400 million) from the city’s social security fund had been diverted to speculative real estate and toll road projects that were linked to the prestige of local authorities, leading to multiple arrests, a public backlash, and ultimately China’s increased scrutiny of pension investments. These episodes highlight how political influence on public pension investment decisions can override professional judgment and expose retirement savings to reputational and financial risks. “This system is one that has led to a careful adjustment of risk and return, which is very essential for the practical long-term functioning of the pension fund system,” said ICPM’s Betermier. Oxford University’s Clark said political appointments to pensions leadership could also undermine professionalism and the quality of investments. “Political influences extend to what people actually invest in and what they don’t invest in,” he said, adding that a change in government could be the cause of sudden changes. Mr Mercer acknowledged that protecting the independence of pension funds was key to maintaining public trust, saying: “Governments, whether intentionally or accidentally, increase price volatility in capital markets or limit the range of investments available to pension funds.
