Life Expectancy as a Driver of Pension Fund Equity Allocation: Evidence from Cross-Country Data

Rising life expectancy is reshaping retirement systems and may have important implications for pension funds’ long-term investment strategies. While traditional life-cycle models predict a gradual reduction in equity exposure as plan members age, rising life expectancy may instead extend investment horizons and increase the resources required to finance retirement consumption. As individuals live longer and spend more years in retirement, pension funds may face stronger incentives to seek higher long-term returns in order to sustain future pension liabilities. This paper explores the relationship between longevity and pension funds’ asset allocation, focusing on the share of financial assets invested in equities. Using cross-country data for a sample of OECD countries, we examine whether improvements in life expectancy are associated with changes in pension funds’ investment behavior. The analysis also considers the role of demographic dynamics, macroeconomic conditions, and differences in financial systems in shaping this relationship. Our findings suggest that longevity trends may influence pension funds’ willingness to allocate a larger share of their portfolios to return-seeking assets. At the same time, the strength of this relationship appears to depend on institutional features and market conditions, highlighting the importance of the broader financial environment in shaping long-term investment strategies. Overall, the study contributes to the growing debate on how demographic change affects institutional investors and long-term capital allocation. The results also provide relevant insights for pension system design and regulatory frameworks, as well as for policies aimed at supporting long-horizon investment and capital market development.