The current financial and economic crisis has highlighted the importance of investment risk for pension systems. In particular, the dramatic spread of defined-contribution pension provision around the world means that investment risk has a direct effect on living standards in old age. This paper explores how uncertainty over investment returns affects individuals’ retirement incomes and government budgets. The key finding is that public pensions, old-age safety net benefits and the tax system act as “automatic stabilisers” of retirement incomes in the face of investment risk in defined-contribution pension plans. However, the degree of protection offered by these policies, and therefore the exposure of individuals’ retirement incomes to investment risk, varies significantly between countries. The paper uses the OECD pension models to explore the implications of a range of possible outcomes for investment returns. (The distribution of investment returns used is derived from historical data in D’Addio, Seisdedos and Whitehouse, 2009.) The analysis begins with the individual pension-scheme member. The results demonstrate that the overall design of the retirement-income package must be taken into account when assessing exposure of individual incomes in old age to investment performance. Many elements of pension systems are not subject to investment risk. And resource-tested benefits can act to mitigate investment risk by paying a larger benefit when returns are poor. Analysis of net pensions shows how taxes can also act to offset the effect of investment risk on living standards in retirement. The differences between countries in the extent to which these different factors affect exposure to investment risk are huge. Together, taxes and meanstested benefits can be termed “automatic stabilisers” for retirement incomes in the face of investment risk. Secondly, the paper uses the OECD pension models to look at the impact of investment risk on the public finances. The corollary of the reduction in investment risk for individuals through tax and transfer policies is exposure to investment risk of the public finances. In countries with resource-tested benefits, the government has a “contingent liability” that depends on investment returns. Better performance means lower expenditure on safety-net benefits. Similarly, the tax system means that the government is effectively a “co-investor”, with the individual retiree, in the defined-contribution plan. Higher returns mean more tax revenues. This effect is particularly large where the tax burden on pensions in payment is high. Adding these two effects together, governments (and so taxpayers) are in many countries significantly exposed to investment risk. This demonstrates how it is impossible to make risks go away: it is only possible to reallocate the risk between different actors in the pension system.