A pension deficit refers to a condition when a pension fund has insufficient assets to meet its obligation. This term is also referred to as “underfunded pension.” A pension fund can have a deficit for many reasons—one of these reasons could be due to market downturns. Pension funds usually invest their assets to grow over time; if the market turns against them, the losses add up, causing severe hardships in gaining back the amount lost without taking more risk. When a pension fund has a deficit, it pays its current obligation from current income, rather than withdrawing it from assets grown over time.
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