For the Market's Winners, the Hard Work Starts Now
Pension funds have benefitted massively from higher bond yields in 2022, but will be forced to take more risks going forward to stay healthy. Plus, an exclusive look at JPMorgan Asset Management’s 2023 outlook.
Your pension is safe.
Photographer: David McNew/Getty Images
For investment purposes, 2022 has been an unmitigated disaster. Stocks and bonds have tanked together. There’s been nowhere to hide. But thanks to the counterintuitive glories of actuarial science and bond math, it’s been great for defined benefit pension funds, an old-fashioned way to manage money that appeared obsolete and doomed. For them, at least, there is a silver lining.
The critical measure for DB plan managers, who have to meet a specific guarantee in what they pay to their pensioners, is the funded status — how much assets lag behind or exceed the total value of liabilities. Pricing those liabilities relies on bond yields, and the higher the yield you can get when you buy a bond, the cheaper it will be for you. High yields, therefore, are good news for pension fund managers. And the dramatically higher yields of 2022 are such great news that they have swamped the awful news from the stock market. As measured by the actuarial group Mercer, assets now actually exceed liabilities for the first time since the crisis year of 2008, and do so comfortably: