Pension funds - can you afford to lose a few basis points?

For pension funds already facing severe funding shortfalls, the answer is clearly no. Yet this is exactly what happens every day. Pension systems across the world are materially underfunded—some by as much as 60%—placing the retirement security of millions at risk. The problem is not always a lack of capital, but a failure to consistently capture value that already exists.

Consider a real estate fund that owns rental properties but fails to collect the rent. No investor would accept that as a “passive” strategy. And yet, in capital markets, this is precisely what happens with corporate actions. If you invest in an asset, you inherit the responsibility to manage the economic decisions associated with it. Ignoring them is not passive—it’s negligent.

Research in the United States and Europe underscores how critical small improvements can be. Studies show that the difference between pension funds becoming insolvent within 10 to 20 years and reaching full funding can be as little as 100 basis points (bps) of additional annual return. We are not looking for $100 billion today. We are looking to systematically capture an extra 100 bps through better execution and governance.

One of the most overlooked sources of leakage lies in corporate actions. In the U.S. alone, approximately $58 billion is spent each year processing corporate actions, with even higher figures in Europe. Yet tens of billions more are missed because voluntary corporate actions are often ignored. Asset managers routinely default to the standard option, which is frequently the lowest-value outcome, simply because the decision-making process is complex, manual, or poorly supported by technology.

These losses are structural, not market driven. Asset managers, custodians, and central securities depositories (CSDs) must enable modern technology solutions on their platforms to prevent these basis points from being lost. Euroclear is leading the way with its Cash+ service. If the industry is serious about closing pension funding gaps, every penny must count.