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Aging Population, Pension Funds, and Financial Markets
Regional Perspectives and Global Challenges for Central, Eastern and Southern Europe
Population aging is expected to affect the performance of financial markets in developed and emerging economies at a time when ever more countries are relying on funded provisions for old age income support.
This study investigates the challenges faced by these former transition countries in the context of international experience from the OECD and Latin America. The overarching conclusion of this study is that these challenges can be addressed but addressing them will require determined policy actions to complete financial market development and to promote financial literacy through education.
PREFACE
Population aging is expected to affect the performance of financial markets in developed and emerging economies at a time when ever more countries are relying on funded provisions for old-age income support.
For the former transition economies in the countries of Central, Eastern, and Southern Europe (CESE)—Albania, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Montenegro, Poland, Romania, Serbia, the Slovak Republic, Slovenia, and Ukraine—this creates special challenges because the aging of their populations is well advanced while the development of their financial markets is still in progress.
At the request of the ERSTE Foundation in Vienna, and with their financial support, World Bank staff and consultants have investigated the challenges faced by these countries in the context of international experience from the OECD countries and Latin America under five broad topics: ...
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Robert Holzmann, Editor
The World Bank
ISBN: 978-0-8213-7732-1
eISBN: 978-0-8213-7733-8
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CHAPTER 1
Introduction, Main Messages, and Policy Conclusions
Robert Holzmann
Population aging is a worldwide phenomenon, but it is particularly advanced in highly developed northern countries. The retirement of the baby-boom generation in these rich countries will impose additional, albeit temporary, pressure on their pension systems. To cope with this pressure, reforms have been introduced that have lessened the generosity of publicly provided pension benefits. By design and by implication, this change increases the importance of mandatory and voluntary funded retirement schemes in smoothing consumption across the life cycle.
Funded pension provisions—particularly when part of a multipillar structure—are crucial to enriching retirement income, but they are not immune to population aging. The funded schemes depend on the next generation to purchase the assets accumulated by the retiring generation (although because financial assets are globally mobile, the purchasers need not be from the same country).
To deliver sustained rates of return at acceptable levels of risk, funded provisions require (a) sufficient development of a country’s domestic financial markets to enable the efficient allocation of capital in the economy (and to facilitate cross-border capital flows), and (b) access to international financial markets to allow for the diversification of pension fund portfolios. ...
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