It is expected that pension funds will shift their focus to the overall risk profile in order to close this gap. They can do so by buying bonds with a longer maturity or off-balance sheet products like swaps, futures and swaptions. And to hedge the inflation risk, they can include index loans or index swap products in their investment mix.
The European governments are meanwhile responding to the risen demand for long-term loans from both European and American pension funds. Recently, the French government issued a 50-year loan. Also Greece, Germany and Italy recently sold long-term paper. And, this month, the Dutch government will issue a 30-year loan.