The citizen as creditor: pensioners in sovereign debt crises

Abstract Pension funds play a unique and underappreciated role in the emergence and resolution of national debt crises. The financialization of emerging market pension systems in recent decades has transformed workers and retirees into significant holders of sovereign bonds. Meanwhile, ageing populations exert fiscal pressure on governments’ traditional taxpayer-funded pension schemes. In other words, pensions affect both the contractual and legislative obligations of the state. Pensioners’ dual status—as both contractual and legislative claimants—makes them doubly vulnerable in situations of fiscal distress. They face the prospect of the devaluation of government paper that funds hold on their behalf, as well as the added risk that politicians will reduce or delay their entitlements to satisfy other creditors. To make matters more complex, governments simultaneously operate as managers, regulators, and counterparties of pension funds. This multifaceted relationship creates perverse incentives and allows pensioners’ interests to be subordinated to those of the state. This article examines the relationship between pensioners and sovereign debt through exploration of both historical debt dilemmas (in Argentina and Greece) and more recent ones (in Sri Lanka, Ghana, and Zambia). In doing so, it urges more fulsome consideration of pension claims in the resolution of future crises and offers suggestions concerning pensioners’ treatment.