price risks correctly. they are mark - to - model instead of mark - to - market. to put it bluntly, if my pension is invested in long - term illiquid assets, i would prefer my pension company to be run by a younger ceo. that way, i would be able to hold him or her accountable for how these investments pan out – avoiding moral hazard problems. a second risk relates to liquidity. a larger share of illiquid assets in portfolios increases liquidity risks. from 2023, pension companies'liquidity needs will become even larger when the requirement for central clearing of interest rate swaps and other derivatives is introduced. central clearing reduces the systemic risks of derivatives transactions. but potentially large liquidity needs require sound liquidity management in order to avoid the risk of forced sales of assets. setting aside more liquid assets to cover liquidity risks also means fewer funds available to invest countercyclically. pension funds will then have less flexibility to buy assets traded at distressed price levels. this may also be side 5 af 7 unfortunate from a systemic perspective, if pension funds are less able to play a stabilising role in periods of market stress. as a central banker, i am not – as many of you – burdened with promises of delivering certain levels of return to pension scheme members. however, i am tasked with keeping tabs on the stability of the financial system as a whole. therefore, i would have serious concerns about investment strategies based on continuously increased risk - taking in the search for yield. in its recent financial stability report, the imf also identifies increasing holdings of riskier and more illiquid assets by institutional investors as a key vulnerability in the global financial system. expectations and behaviour should be adjusted to avoid insecurity this brings me to my last and most important point today. going forward, there is no substitute for ( 1 ) acknowledging the conditions we face today, ( 2 ) increasing transparency about implications for pension plans, and finally, ( 3 ) adjusting expectations and behaviour accordingly. a growing number of pension plans are recognising the impact of the low rate environment and adjusting expected return assumptions. in denmark, the council for pension projections recently reduced their return assumptions over a ten - year horizon for eight out of ten asset classes. by reducing the stock of defined benefit plans, pension funds have transferred a large share of the risk from the low yield environment to present and future pensioners. today, many pension savers have a higher

degree of freedom when planning their retirement income. individuals are better able to match their savings and investment plans with their desired income, as well as their risk temperament. but this assumes that individual savers are well - placed to make informed investment decisions. with options come responsibility and trade - offs. allow me to use an illustrative example. a danish pensioner – let's call him lars – pays 15 per cent of his real constant salary during all 40 years of his working life to save for 20 years of retirement. with an annual real rate of return at 5 per cent, lars can look forward to annual retirement payouts at nearly 100 per cent of his annual income as a wage - earner. on the other hand, if real returns decline to 1 per cent, lars'payout would drop to about 40 per cent, all else equal. clearly, if yields are declining, something has to give. side 6 af 7 ultimately, pension savers will be faced with the following choice going forward : increase contributions, delay the age of retirement, or accept lower payout. put simply : pay more now, work longer, or spend less later. not a popular set of choices. on the first option, it is clear that increasing contributions to secure future income is an important step. mandatory savings programs have become widespread. micro studies from danmarks nationalbank show that mandatory programs are a better instrument for boosting pension savings than tax deductions. the latter tend to be inefficient and expensive. from a macroeconomic perspective, it is worth noting that increasing savings may dampen economic growth, as private consumption is reduced. especially in countries like my own, where savings ratios are already historically high. turning to option two : work longer. increasing the official retirement age has been an important part of labour market reforms in many countries. these reforms are often politically difficult to implement and are constantly under threat of being rolled back in some countries. but they are necessary to maintain long - term sustainability of public finances in the face of ageing populations. finally, the third option. accepting lower post - retirement income is not an easy sell. this has been clearly exemplified in recent developments in the netherlands. yet, in some countries it may be necessary to re - evaluate what we can accept as a reasonable standard of living. with more transparency and fewer unrealistic guarantees, it will be easier for pension savers to adjust savings and consumption patterns at an earlier stage. this leads to