Pension Fund

Pension funds are among the largest investors in the world, managing very large sums on behalf of workers and retirees.

There are two main types. Defined benefit pension funds promise members a specific retirement income, usually based on salary and years of service, and the employer bears the risk if investments fall short. Defined contribution funds invest contributions into individual accounts, and members’ retirement income depends on how much is paid in and how investments perform.

Pension funds invest in a wide range of assets, including shares, bonds, property, infrastructure, private equity and other alternatives. Because they have long-term obligations, they can invest for long periods. Defined benefit funds often use liability-driven investment, matching assets to future payments.

Examples include large public sector funds, such as CalPERS in the United States, the Canada Pension Plan Investment Board and Australia’s large superannuation funds, as well as corporate and industry-wide funds.

For example, a pension fund might invest members’ contributions in a mix of global shares and bonds to grow their savings over decades. Pension funds are regulated to protect members, with rules on funding, investment and governance.