Demographic transition and financial assets

In this paper we study some possible consequences of demographic ageing on the Italian economy, in particular the level of per capita consumption compatible with a balanced growth path, the level of saving and the demand for financial assets. First, with a neo-classical growth model accounting we derive the changes in percapita consumption and in the saving rate compatible with the reduction in the stock of capital implied by the shrinking labour force. Then, using the 1989-1998 Surveys on Household Income and Wealth of the Bank of Italy we compare these values with the future paths, induced by the demographic transition, of the household saving rate and the propensity to invest in financial and risky assets.

As the deadline for completion of the European internal market approaches, tax harmonisation becomes the major concern on the European policy agenda. Until now, the debate has only focused on the taxes which have direct incidence on the process of removing fron tiers barriers : indirect taxes and taxation of income from financial assets. Though the changes are likely to be very small and partial in the short term, the need for some modifications in national tax systems offers good opportunity for more general reflexion about the rationale of tax structures in Europe. This reflexion has to take into account the constraints induced by complete market integration and the necessities of allowing for some national specificities that are likely to persist, such as differences in demographic trends or in the degree of public sector involvment in the supply of certain goods and social services. Moreover, the prospect of monetary unification calls for discussion of how instruments and responsabilities ought to be shared in matter of stabilisation policy. First we analyse the major differences between existing national tax systems in Europe, the United-States and Japan, and present the current state of Community finance. We then briefly discuss the general economic principles of taxation. In the third section different ways of harmonising taxes are explored, trying to reconcile the constraints of harmonisation and the national specificities and sovereignties. These general conclusions are then applied to more detailed study of those taxes that ought to be harmonised taxes on financial assets income, corporate income taxes, VAT and excise duties or possibly transfered to the Community level in the event of an increase in the size of the Community budget. Finally we use the MIMOSA multinational macromodel to simulate the short and medium run macroeconomic consequences of various harmonisation hypotheses.

SummaryIn the past, the elderly consumers’ purchasing power was often neglected by the commercial sector. Meanwhile, theeconomic importance of the elderly has been recognised and businesses with foresight are now prepared for thesenew customers. At this moment in time, the purchasing power of the elderly exceeds that of the younger generation.The over 55-year olds have at their disposal about half of Germany’s financial assets. This group of consumers isalso believed to be more active and free-spending than was previously thought to be the case. Yet, nowhere in theworld is there any sound, evidence-based knowledge regarding these aspects of an ageing society. For this reason,our economic models or structures are geared towards the young, ignoring the trend towards a more senior society.The buying potential slumbering in this new demographic trend isfor the most part ignored. This article presents the results of anarrative-systematic review of published literature (7/2010) on themost important target and consumer groups of the next decadewith the aim of pointing out the status of gerontological researchin the commercial industry, the demographic trends, and to deduceconsequences for senior citizen marketing and so obtainpointers for future research. The assumption that the ageing populationwill alter the consumer and marketing worlds can now beacknowledged. In future it will be necessary to apply existing marketingstrategies to target the older age groups but also to recognisefeatures specific for different generations as well as use opportunitiesapplicable to all generations. The process of understandingthe older generation has only just begun. From thisperspective, old age is still in its youth and its market value andmarketing potential still underdeveloped and unexploited. A significantlimitation regarding this research is, that its focus is placedmainly on Germany, as the country with the fastest aged-populationgrowth rate and which at present has the second oldest populationin the world.Keywords:

The U.S. population is growing older and living longer. Yet older people have been leaving the labor force at younger and younger ages. Moreover, most Americans have saved very little. At the same time, the cost of medical care has been increasing. These demographic trends and changes in individual circumstances will contribute to some of the most important economic transitions and policy challenges for the coming decades. Understanding the determinants of retirement, the nature of saving for retirement, and how to more efficiently provide medical care are perhaps the most critical issues that demographic trends have forced on us. These and related issues make up the activities of the NBER's Program on the Economics of Aging. Begun in 1986, the Aging Program has developed primarily around large, coordinated research projects that simultaneously address several interrelated issues in the economics of aging. Extensive funding for the program has been provided by the National Institute on Aging (NIA), both through multiple research grants and through a Center grant, which provides centralized infrastructure support to the Program effort. The major research categories in the NBER's Program on the Economics of Aging are: 1) saving and the evolving financial circumstances of older Americans; 2) work and retirement decisions at older ages; 3) health care; and 4) aging around the world. In each of these areas, a major goal of the research is to better understand individual decisions as people age, and how these decisions are affected by individual circumstances and the economic incentive effects of government policies and programs. This article summarizes research in each of these areas. Much effort also has been directed to attracting young researchers to this field. To that end, our NIA Fellowship Program provides annual fellowships to between five and ten graduate students who are beginning research on the economics of aging. It also provides two or three postdoctoral fellowships each year to recent Ph.D. recipients, enabling them to spend a year at the NBER to do research on issues in the economics of aging and health care. The combination of NIA support for research training and fellowships, new project development, data resource development, and smaller exploratory grant support has been instrumental in our efforts to expand the program, and to engage outstanding new scholars in research on aging. Nearly 100 papers are completed annually on issues in aging by participants in the NBER Program. Some of these appear in a series of books published by the University of Chicago Press.(1) The Evolving Financial Circumstances of Older Americans The way Americans provide for financial support in retirement is changing rapidly. All three of the traditional pillars of retirement support - Social Security, employer-provided pensions, and saving - are in transition. Potential changes in Social Security have received the most public attention. The aging of the population has made the continuation of current levels of real benefits from Social Security an uncertain prospect. Employers, too, are reacting to the increasing costs of their retirement benefits, with many of them discontinuing traditional pension benefits and retiree health insurance programs. At the same time, the rapid expansion of 401(k) programs, and the dramatic growth in savings in 401(k) and IRA programs, suggest a transition in personal savings as well. While most households retiring in the past had essentially no financial asset savings, that may not be true in the future. By the mid-1990s, at least one spouse in over half of U.S. families was eligible for a 401(k) plan, and over 70 percent of those who were eligible made contributions. Today, over $100 billion is contributed annually to 401(k) plans. The Growing Influence of Retirement Savings A long series of studies by Steven Venti, James Poterba, and me has considered whether IRAs and 401(k) programs have added to personal saving, or whether they have simply replaced saving that would have already taken place in some other form. …

The world's population is aging. Virtually no nation is immune to this demographic trend and the challenges it brings for future generations. Relative growth of the elderly population is fueling debate about reform of social security programs in the United States and other developed nations. In the United States, the total discounted shortfall of Social Security revenues has been estimated at about $11 trillion, nearly two-thirds of that comes after 2050. However, this paper argues that those calling for reform have overstated the demographic challenges ahead. Reformers conclude that aging poses such a serious challenge because they focus on financial shortfalls. If we focus on demographics and on the ability to produce real goods and services today and in the future, the likelihood of a real crisis in social security in the United States and developed nations is highly improbable. Demographic changes are too small relative to the growth of output that will be achieved even with low productivity increases. This paper concludes with policy recommendations that will enhance our ability to care for an aging population in a progressive manner that will not put undue burdens on future workers. Policy formation must distinguish between financial provisioning and real provisioning for the future; only the latter can prepare society as a whole for coming challenges. While individuals can, and should, save financial assets for their individual retirements, society cannot prepare for waves of future retirees by accumulating financial trust funds. Rather, society prepares for aging by investing to increase future real productivity.

Demographic trends in the developed world indicate that older entrepreneurs will play an increasingly important part of economic activity as populations age, yet this cohort has been largely ignored in entrepreneurship research. This paper provides an overview of current research about the so-called "grey entrepreneur" (also known as senior, older, third age or elderly entrepreneurs), drawing on research from a number of nations. The extant literature indicates that a majority of older entrepreneurs are male, although the number of older female entrepreneurs is increasing; they are also less likely to possess formal educational qualifications than younger entrepreneurs. Some of the advantages that such entrepreneurs possess include greater levels of technical, industrial and management experience; superior personal networks; and a stronger financial asset base. Some of the disadvantages or potential barriers faced by older entrepreneurs can include lower levels of health, energy and productivity; ageism; and the value that his or her society places on active ("productive") ageing. Numerous issues still remain to be investigated in this field of research. These include the differences between younger and older entrepreneurs; their motives and success criteria; the impact of financial, knowledge and other resources on venturing behaviour; the role of government policies in fostering or hampering individual enterprise; and the significance of cultural differences amongst older entrepreneurs. Research in this field is currently also hampered by a multiplicity of terms and definitions, a lack of age-related data about different entrepreneurial cohorts, and the problems inherent in operationalising the concept of the "grey entrepreneur."

Population aging, digital divide, and household financial asset choices—An empirical study based on prefecture-level population census data

The world’s population is aging, with virtually no nation immune to this demographic trend and the challenges it brings for future generations. Relative growth of the elderly population is fueling debate about reform of Social Security programs in the United States and other developed nations. In the United States, the total discounted shortfall of Social Security revenues has been estimated at about $11 trillion, of which nearly two-thirds comes after 2050. However, this chapter argues that those calling for reform have overstated the demographic challenges ahead. The reason that reformers reach the conclusion that aging poses such a serious challenge is because they focus on financial shortfalls. If we focus attention on demographics and on ability to produce real goods and services today and in the future, it becomes clear that the likelihood that Social Security in the United States and developed nations taken as a whole can face a real crisis is highly improbable, for the simple reason that demographic changes are too small relative to the growth of output that will be achieved even with low productivity increases. We will conclude with some policy recommendations that will enhance our ability to care for an aging population in a progressive manner that will not put undue burdens on future workers. Policy formation must distinguish between financial provisioning and real provisioning for the future; only the latter can prepare society as a whole for coming challenges. While individuals can, and should, save in the form of financial assets for their individual retirements, society cannot prepare for waves of future retirees by accumulating financial trust funds. Rather, society prepares for aging by investing to increase future real productivity.

Within national pension systems, the role of private pensions tends to become increasingly important. In support of this idea, we recall the conclusion that has been made by research that has taken place over time that the value of private pension fund assets has risen on average by 11.5% annually. The impressive value of assets becomes extremely tempting for investors who see extremely good long-term investment opportunities if we consider the amounts traded. The Romanian pension system has entered a continuous process of change, not always with positive consequences on the level of pensions. The truly significant reforms have only emerged since 2000, being favored by the country's accession to the European Union. Unlike other states, in Romanian the 2008 crisis affected the pension system especially in its public component. Private funds have resisted fairly well the problems that have arisen, partly because of the extremely prudent investment policy. The paper attempts to capture the pressures on pension systems, also making a series of forecasts on future developments in different hypotheses of the economic and social context.

Pension systems can influence capital flows by affecting saving and investment. At the same time, the growth of pension fund assets has implications for the depth of financial markets. This paper seeks to shed light on these effects, by highlighting three relevant aspects.First, the stage in the demographic transition. Since around the mid-1960s, lower emerging market economy (EME) fertility rates have meant lower dependency ratios, which has tended to boost saving, and also a rise in the working-age population, which has tended to boost investment. The transition has worked out as predicted in some countries but not in others. In particular, in the aftermath of crises (eg Asia in the late 1990s), saving and investment have tended to fall, and current account balances to rise. Nevertheless, current account surpluses are expected to fall or turn to deficits as populations age in coming decades. In some countries, this process has already begun. Second, pension system design. National saving could be affected by how pension benefits are financed. Recent reforms have favored plans based on defined contribution and prefunding, moving away from defined benefit and pay-as-you-go plans. However, with a few exceptions, it is not clear that such pension system reforms have helped increase saving. This could be due to lower precautionary saving, transitional fiscal costs associated with pension reforms, problems with low or declining pension fund coverage, and high costs.Third, pension fund asset accumulation and financial deepening. Rapid growth in pension fund assets appears to be associated with deeper financial markets in a number of EMEs. This could also influence capital flows by affecting saving and current account balances, as well as the pattern of gross capital flows.

Over the past centuries, private banks have developed stable and highly lucrative value propositions to serve their clients. They were built on an integrated value chain comprising administration, asset management and advice. Long-term demographic, political, and fiscal trends suggest that private banking will remain an attractive business in the foreseeable future. After an overshooting of returns during the nineties, traditional value propositions came under pressure. Extraordinary rates of return triggered substantial entry from banking, near- and non-banking actors. By 1999 it became evident that several trends were conspiring to undermine existing value propositions and customer loyalty, initiating a fragmentation of the traditional value chain. Three trends were particularly salient: lower financial returns, commoditization and rising complexity. Combined, these trends threaten the core asset that lies at the heart of private banks' ability to create value for their owners: a deep client relationship with extremely wealthy individuals. In response to these trends, private banks made adjustments: creating adequate market structures, where wealth managers no longer operate according to office location, but according to the domicile of the client; creating specialist teams and family offices for U-HNWIs, offering integrated wealth management solutions adapted to specific tax and legal requirements; and creating tailored advisory services such as active portfolio advice and portfolio supervision in the domain of financial asset management. This paper proposes to go a step further. To retain or grab a leadership position in the HNWI and U-HNWI segments, banks must scrutinize their value propositions, strategies and scope of offerings. Excellence in asset management will remain a necessary condition for success. But if you cannot consistently outperform the competition, it is critical to differentiate yourself by being better in some other dimension that is highly valued by your customer and not easily replicated. This calls for a bold strategy that goes beyond positioning the company in a given industry space through mergers and acquisitions. Instead one must focus on shaping the space in ways that will ensure superior profitability and durable customer relations with HNWIs and U-HNWIs well into the future. To deliver superior returns, the strategy must deepen the general client relationship in a sustainable fashion; differentiate the bank from competitors and be difficult to replicate; and optimally target the HNWI and U-HNWI segments. Drawing on research from a wide range of the social sciences, this paper argues that the way forward is a nontraditional value proposition centering on strategic giving to create personal and family legacies. Section 2 develops a taxonomy to segment clients according to legacy needs. Section 3 discusses how to implement the value proposition. Section 4 concludes.

The issue of how to organize pension provision and old age support in developing countries is increasingly coming to the fore. The demographic and epidemiological transitions underway in the developing world make this a pressing issue. Current population forecasts suggest that by the year 2050, there will be ten Latin Americans, 12 Africans, and 69 Asians aged 60 and over for every European in the same age bracket (Barrientos and LloydSherlock, 2002). The World Bank’s 1994 report on ‘‘Averting the old age crisis: policies to protect the old and promote growth’’ raised the profile of ageing as an issue in the context of development policy, but within an unfortunate context of ‘‘crisis’’ (World Bank, 1994). In the 1990s, a number of countries in Latin America and transition economies radically transformed their pension provision, and moved swiftly in the direction of privately provided individual retirement plans. However, pension reform has been embedded within structural adjustment, mainly as a response to fiscal deficits and labour market liberalization. This has narrowed the potential range of policy responses to demographic change available to developing countries. It is important to focus attention on the issue of pensions in the South from a development perspective. This paper uses a comparative perspective to draw attention to the variety of pension provision in the developing world, and to identify and discuss the main issues for pension reform in the South. The spread of pension reform in the 1990s, and the discussions that have attended it, have paid insufficient attention to the variety of pension provision in the South. The countries selected for this comparative study make this point well. Chile’s individual retirement plans have taken a paradigmatic role in pension reform among developing countries. Employees contribute a fraction of their earnings to a retirement account managed by private pension fund managers, which invest account balances in a range of financial assets in exchange for a management fee. At retirement, employees use the balance of their individual accounts to purchase an annuity. Singapore’s Central Provident Fund provides a different model of old age support. Compulsory payroll contributions are collected in a fund managed by the government, and the individual accounts are credited with a fixed rate of return. Affiliates can use their savings for a range of merit expenditures, including health, housing, and education. Individual retirement plans and the provident fund model reflect dominant models of pension provision in Latin America and South Asia respectively. Less conspicuous, but very important in the context of development policy, are the experiences of pension reform in South Africa and Brazil. In South Africa, the fall of apartheid led to the universalization of pension benefits, by abolishing the discrimination in entitlements and access to pensions suffered by blacks. The ‘‘social pension’’ provides a regular source of income to elders and their households, and is proving to be a powerful instrument of poverty reduction and development. The ‘‘social pension’’ has also led to a significant improvement in

The real income of people in India has gained momentum after 1992 mainly because of pedestal provided by the government & changing demographic trends in the globe. The markets, institutions, products, and savings began to expand to earn a better return on their savings portfolios. Pension schemes play a seminal part in the flow of income after superannuation. There are two categories of pension plans in India the Defined Benefit and Defined Contribution plan. An evaluation of pension plans using secondary data revealed that average returns based on market stipulation is less than that of the returns from Defined Benefit plans. Pension schemes launched by LIC of India & other insurance companies were not attractive & hence did not take off. The pension plans with possible options did not yield returns as Mutual funds or market-based funds. A survey was carried out in order to understand intention of customers/investors towards savings and investment in pension plan also to know reasons for non acceptance of the same. The study collects primary data from 134 respondents / investors using Cue sampling method from a structured questionnaire. The results of the study highlight that pension are still considered as secondary preference as against savings for immediate liquidity and long term asset funds. While pension is a necessity at the core of the consumer adequacy of returns, long term size of savings, income adequacy, cost of pension schemes, low awareness, lack of perceived transparency and higher investment spending under exceptional and normal situation contribute to low level of acceptance of pension plans and schemes.