According to the Organization for Economic Cooperation and Development (OECD), pension assets took a substantial hit in 2022, plunging by 14% to USD 51 trillion, only to rebound modestly by 11% in 2023, reaching USD 55.7 trillion. Countries with the largest pension assets include Japan, Norway, and the United States. The Government Pension Investment Fund of Japan (GPIF), standing as the world's largest pension fund, holds assets totaling a staggering $1.4 trillion. However, these countries are facing a myriad of problems.
The deficit in pension funds globally has reached alarming levels, with a $78 trillion shortfall in the 20 largest OECD countries alone.
Remember, the rise in longevity and aging populations worldwide is putting significant strain on retirement systems and pension funds. As people live longer, pension systems are required to pay benefits for extended periods, leading to a gap between retirement savings and income needs. People are seeing the gap and are growing skeptical about the pension system.
Apparently, the pension industry has looser regulations and oversight compared to the banking and insurance sectors, increasing the risks of unethical behavior and other systemic issues. There is also a trend of outsourcing pension responsibilities to insurance firms, which threatens the stability of pension systems in the long term. Moreover, changes in investment strategies, such as reducing stock investments and increasing bond allocations, have impacted overall performance.
Furthermore, unclear valuation methods and dependence on risky assets raise concerns about the performance and sustainability of pension systems. Put differently, they have put too much money in risky assets!
All in all, global investment funds need additional transparency and better governance practices to increase public trust as their pensions are not certain. Governments and pension funds are employing different approaches to address these challenges.
This is where it gets interesting. Japan is known for having a conservative investment approach, but the Government Pension Investment Fund (GPIF) of Japan is now looking into investing in Bitcoin.
Hang on! Yes, Bitcoin.
Is Japan seeing the strength of Bitcoin? Maybe it's eyeing it as a solution to transparency and governance issues. With Bitcoin's transparent and decentralized system, policymakers could step up oversight and accountability in finance. One thing is certain: the fact that Japan is traditionally conservative and is looking towards the future and potentially seeing Bitcoin says a lot.