Financial stability (insurers and pension funds) [18]

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Bullet points include: Usual (Anglo-saxon?) policymaker view: pension funds have long-term investment horizons and probably make a positive contribution to financial stability. Typically unleveraged (but derivatives, securities lending, asset management links?). But maybe only true in the past, when DB schemes were open, well-funded (or at least benefits were substantially discretionary) and the norm across industry. Challenges include: DB funding (and buy-out!) shortfalls, demographics. Optimistic asset return assumptions (e.g. some US local government schemes). Possible exposure channels: Centralised Pension Protection Schemes. Corporates needing to divert funds from investment towards underfunded pension schemes? Breakdown of social contract underlying pension provision?

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