Inflation, Pensions and Liability-Driven Investment Solutions
Markus Aakko
Foreword
Inflation-Sensitive Assets
Investable Commodity Indexes and Inflation: A Brief History
Commodities, Inflation and Growth: Implications for Policy and Investments
Inflation and Real Estate Investments
Infrastructure Assets and Inflation
Equity Investments and Inflation
Inflation-Linked Markets
Understanding and Trading Inflation Swaps and Options
The Role of Models in Modern Monetary Policy
Term Structure of Interest Rates and Expected Inflation
Monetary Policy, Inflation and Commodity Prices
Inflation and Asset Prices
Inflation and Equity Returns
Inflation Hedging through Asset and Sector Rotation
Practical Models for Inflation Forecasting
Protecting Insurance Portfolios from Inflation
Inflation, Pensions and Liability-Driven Investment Solutions
Ultra-High-Net-Worth Investors and the Real Asset Value Chain
Inflation Markets: A Portfolio Manager’s Perspective
Inflation Indexation and Products in Emerging Markets
Pension plans play a significant role in most developed market societies. As investments, they provide capital to the economy; as funded pools of savings, they provide security to millions of retirees. Changing demographics have put the solvency of several pension schemes to the test, as ageing societies mean more retirees and fewer participants contributing to the savings pool.
In developed markets, most of these pensions are stated in nominal terms, but some are tied to price indexes. If inflation were to rise substantially, more pension funds may choose to provide some indexation. Consequently, finding ways of mitigating inflation has become important for most pension managers, as inflation is one of the potential risks associated with the solvency of their schemes.
In this chapter, we focus on how inflation can potentially influence the solvency of pension funds; we review how private pension plans in selected countries differ in their pension commitments, and methods of assessing the required contributions to the plan. We find that, while many countries have private pension systems with exposure to inflation, the discount curves used for valuation are almost always
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