Pension systems worldwide are facing mounting financial pressure as people live longer and birth rates fall, leaving retirement funds responsible for paying benefits over extended periods while the pool of workers contributing to those systems declines.
The scale of the challenge is highlighted in the 2026 Marsh CFA Institute Global Pension Index (MCGPI), published last week. Of the 55 pension systems assessed, 43 have fertility rates below the replacement level of 2.1 children per woman, while 23 have rates below 1.5.
Life expectancy at age 65 in more developed regions has risen by 50.9% since 1950, reaching about 20 additional years, according to the index. The increase means pension funds must finance longer retirements at a time when fewer workers are available to support older generations.
“The problem is huge, and it’s gotten more pronounced over time,” said Sebastien Betermier, executive director of the International Centre for Pension Management. He noted that some pension funds have members who have been retired for nearly half a century and are now aged 107 or 108.
“The higher the longevity, the more years the pension funds have to cover, and so that immediately comes in as an additional liability,” Betermier told CNBC. “Think about the cost that it imposes actually on the next generation … it is a ticking time bomb.”
The pressures vary according to how pension schemes operate. Defined-benefit plans promise retirees a predetermined income, leaving providers exposed to rising liabilities when members live longer than anticipated. Defined-contribution plans, by contrast, base retirement payouts on accumulated savings and investment returns, exposing members to the risk of outliving their money.
Pay-as-you-go systems face particular difficulties because contributions from current workers largely finance benefits for existing retirees. A shrinking workforce can weaken the financial base supporting these payments.
The strain is already apparent in the United States. The Old-Age and Survivors Insurance Trust Fund, which finances retirement and survivor benefits for tens of millions of Americans, is projected to exhaust its reserves in the fourth quarter of 2032, according to its latest trustees’ report.
Fully funded pension schemes, which invest contributions from workers and employers to meet future obligations, are also exposed. As more members retire, some funds could pay out more in benefits than they receive in new contributions, increasing their dependence on investment returns and accumulated assets.
“Very few systems, as they currently operate, are secure,” the MCGPI report said, warning that funding future pensions and aged care would become more critical as the ratio of workers to retirees declined.
The demographic shift is also changing investment strategies. Some pension funds are turning to private equity, infrastructure and private credit in pursuit of higher returns, accepting greater exposure to investment risks as their obligations grow.
In Australia, about a third of superannuation funds recorded negative natural cash flows from assets over a three-year period, meaning benefit payments exceeded contributions, according to a 2025 report by the Australian Prudential Regulation Authority.
“You can try to earn higher returns on your investments, but that’s going to require taking on greater levels of risk,” Betermier said.
Jean-Pierre Aubry, associate director of state and local research at the Center for Retirement Research at Boston College, said pension funds were increasingly shifting towards riskier investments, although the extent varied across markets.
“I think everybody is shifting a little more risk where they can. The costs are going up with this demographic shift,” Aubry said.
He pointed to US state and local government pension funds, which hold only about 20% of their assets in bonds, with much of the remainder invested in equities and private assets. That allocation leaves them more exposed to investment risk than comparable funds in Europe and Canada, he said.
David Elias, chief executive of Australian pension fund Hostplus, said ageing populations were only one of several factors shaping investment decisions. He advocated diversified portfolios across asset classes, geographical markets and industries, with expected returns assessed against the risks involved.
Elias also cited immigration policies and technological advances as potential ways for governments to mitigate demographic pressures, while arguing that changing population patterns could create investment opportunities.
“I don’t underestimate governments being incredibly creative in terms of dealing with these types of issues,” he said. “You know, but they’re going to have to address it, no doubt about that.”
