Lars Rohde: Challenges for the pension section in a low interest environment

Speech by Mr Lars Rohde, Governor of the National Bank of Denmark, at the Investment and Pensions Europe conference, Copenhagen, 3 December 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Pension schemes are fundamentally a system for reallocating resources between generations and over time, depending on the system. There are many different setups for facilitating and formalising this transfer of resources. Importantly, the system is built on contracts and trust. Trust that setting aside part of your salary during your working life will be reciprocated by adequate post-retirement income. And trust that price stability will guard against unexpected losses in purchasing power and living standards.

Has this contract and this trust always held up historically? No. An example is the double-digit inflation which substantially eroded the value of pension incomes in the 1970s and early 1980s.

During the following period, stronger mandates for price stability and inflation targeting were given to many central banks. And we now seem to have moved well beyond the risk of high inflation in Europe.