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June 2017

What Rates of Productivity Growth Would Be Required to Offset the Effects of Population Aging? A Study of Twenty Industrialised Countries

By Frank T. Denton & Byron G. Spencer (McMaster University) A shift in population distribution toward older ages is underway in industrialised countries throughout the world and will continue well into the future. We provide a framework for isolating the pure effects of population aging on per capita GDP, employ the framework in calculations for twenty OECD countries, and derive the rates of productivity growth required to offset those effects. We consider also some labour-related changes that might provide offsets,...

Pensions: What Solidarity between Generations?

By Gérard-François Dumont (University of Paris 4 Sorbonne) To understand the fact that solidarity between generations is essential for pensions, Gérard-François Dumont presents a parable inspired by the story of Robinson Crusoe. It shows that it is always the case that assets reduce their purchasing power to release payments to pensioners, whether they are in a distribution or capitalization system. According to the author, "capitalization is a system of financial distribution; Distribution is a system of human capitalization". (more…)

Public Pension Reform and the Takings Clause

By Michael B. Kent Jr. (Campbell University) Of the many current issues facing state and local governments, perhaps one of the most pressing is public pension reform. According to the U.S. Census Bureau, there are nearly 4,000 public pension systems in the United States, the vast majority (3,742) of which are administered by local governments. As of 2014, these systems had more than 19,000,000 members and more than 9,000,000 beneficiaries receiving periodic payments. But many of these systems are in...

We’ll Live to 100 – How Can We Afford It?

The challenges we face to provide our ageing societies with a financially secure retirement are well-known. In most countries around the world, standards of living and healthcare advancements are allowing people to live longer. This should be celebrated, but we should also consider the implications for the financial systems that have been designed to meet our retirement needs, which in many countries are already under severe strain. This report has been produced as part of the Forum’s Retirement Investment Systems...

Assessing the Demand for Micropensions Among India’s Poor

By Olivia S. Mitchell (University of Pennsylvania) & Anita Mukherjee (University of Wisconsin) Using new data from a field experiment in India, we test hypotheses about micropension design in a poor population. We elicit demand for the basic micropension in addition to variants with different minimum withdrawal ages, government match rates, and options for lump sum withdrawal. A majority (80%) of respondents report interest in the micropension, and the amount they are willing to contribute would be enough to cover...

Assessing the Demand for Micropensions Among India's Poor

By Olivia S. Mitchell (University of Pennsylvania) & Anita Mukherjee (University of Wisconsin) Using new data from a field experiment in India, we test hypotheses about micropension design in a poor population. We elicit demand for the basic micropension in addition to variants with different minimum withdrawal ages, government match rates, and options for lump sum withdrawal. A majority (80%) of respondents report interest in the micropension, and the amount they are willing to contribute would be enough to cover...

Modeling Multi-State Health Transitions in China: A Generalized Linear Model with Time Trends

By Katja Hanewald, Han Li & Adam Wenqiang Shao (University of New South Wales) Rapid population aging in China has urged the need to understand health transitions of older Chinese to assist the development of social security programs and financial products aimed at funding long-term care. In this paper, we develop a new flexible approach to modeling health transitions in a multi-state Markov model that allows for age effects, time trends and age-time interactions. The model is implemented in the...

Long-Run Biological Interest Rate for Pay-as-You-Go Pensions in Advanced and Developing Countries

By Masahiro Nozaki (International Monetary Fund) How much of an internal rate of return would a sustainable pay-as-you-go pension system offer current and future generations equally? The answer is the sum of the Long-Run Biological Interest Rates (LBIR), the real-world equivalent of Samuelson's (1958) biological interest rate, and future productivity growth. Reflecting global population ageing, the median LBIR across 172 countries is as low as 1 percent per year. The LBIRs are particularly low in advanced countries, estimated to be...

Annuities and Retirement Income Planning

By Patrick J. Collins (Schultz Collins) This CFA Institute Research Foundation brief provides a broad-brush survey of the US annuity marketplace as of the end of 2014. It is a short and generic introduction to currently available annuity contracts. It is oriented toward both investors who are contemplating the use of annuities to generate income and hedge longevity risk and their advisers. It does not discuss the literature that evaluates annuities as instruments to enhance utility in the context of...

May 2017

Fiscal Challenges of Population Aging in Brazil

By Alfredo Cuevas, Izabela Karpowicz & Mauricio Soto (International Monetary Fund); Carlos Mulas-Granados (Government of the Kingdom of Spain)  In recent decades, population has been aging fast in Brazil while old age pensions and health related spending have increased. As the population ages, the spending trend threaten to reach unsustainable levels absent reforms. Increasing the retirement age is key, but by itself will not provide sufficient savings to close the pension system financing gap, and reforms reducing replacement rates are...