1. interest rates on government bonds, perceived as the safest asset class, have fallen to historic lows, even below zero in many countries
2. pension funds' expected rate of returns have barely budged since the 1970s (7-8%) despite the fact that interest rates have dropped from double digits to below zero in many cases
3. to make up the loss of yield, pension funds have turned to riskier assets such as stocks
4. fueling the fire, state regulations have been relaxed to allow these public pension funds to invest in risky assets
5. since the 2008 crisis pension funds have been underfunded - they take in too little money to be self-sustaining
6. it's becoming increasingly clear that pensions can't "grow out of" their underfunded positions
7. having loaded up on risky assets, pensions will face large declines in the next recession as stock markets deflate
The joker in the deck is how the pension funds will react to a declining stock market.
Their only viable option would appear to be government bonds. A collective flight into bonds would further depress interest rates. Falling interest rates produces capital gains on bonds, which attracts still more investors, driving rates further down. And so on. Flight to bonds on a large scale driven by pensions would also accelerate stock market declines, making bonds that much more attractive.
Having broken the zero interest barrier, there appears to be no bottom to interest rates anymore. The lack of a bottom opens up some very bizarre scenarios.