Financial markets

Ageing and Pension System Reform: Implications for Financial Markets and Economic Policies




Supplement to Financial Market Trends

The demographic transition to older societies, in the most advanced economies but also beyond, is ushering in economic and financial changes. These were reviewed by the G10 in a 1998 report, The Macroeconomic and Financial Implications of Ageing Populations, which analysed the impact of population ageing on growth and living standards, public finances, financial markets and international capital flows. In line with some of the main recommendations of that report, pension system reforms have been undertaken since then in most G10 countries, and experience with private saving for retirement has continued to build up, with substantial and instructive differences across countries. This report examines the financial market and policy implications of the increasing importance of funded retirement saving.

The principal conclusions and recommendations are as follows:

  • Changes underway in public and private pension schemes may increase significantly the influence of retirement saving and related capital flows in financial markets;
  • Governments could help to facilitate the development and expansion of markets for undersupplied financial instruments that will be useful for retirement savings and the provision of pension benefits;
  • Regulatory and supervisory developments should aim to influence and support the trend towards more rigorous risk management, greater transparency, and better governance at private pension funds, also by ensuring consistency between funding and prudential requirements and accounting standards;
  • Tax rules should not hinder the build-up of funding buffers by private pension funds, but should avoid the abuse of tax deferrals; and
  • As risks are increasingly being shifted to individual households, protection of pension beneficiaries is an issue, and financial education and the provision of advice may need to be strengthened.

This publication can downloaded free of charge in pdf file format.

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