The Future of Saving: The Role of Pension System Design in an Aging World

IMF News, January 16, 2019

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Speech by IMF First Deputy Managing Director David Lipton, Opening Remarks to Tokyo Seminar, January 16, 2019.
Launched alongside the IMF Staff Discussion Note on The Future of Saving: The Role of Pension System Design in an Aging World.
Japan highlighted as a prime example of a rapidly aging society and the reason for launching the paper in Tokyo.
Relevant event: G20 meeting hosted by Japanese authorities; Japan to host a G20 symposium on The Macroeconomic Challenges of Demographic Changes.

Aging affects: the size of a country’s labor force; public finances through higher pension and healthcare spending; national saving (private + public).
Typical life-cycle pattern noted: the young borrow, prime working age individuals save, and older people spend after retirement.
Specific statistic: old age-dependency ratio in Japan is expected to rise from 44 percent in 2016 to nearly 75 percent by 2060.
Demographic stages by country group:
- Advanced economies: generally in late-stage demographic transition and witnessing rising fiscal burdens.
- Most low-income developing countries: in early stage with much younger populations; challenge is to invest for the future.
- Emerging market economies and some low-income developing countries: starting to face aging challenges as well.

Private savings will drive national savings over the next 30 years.
Pension systems influence private savings, producing large differences in private saving rates across countries.
Quantified projection: the cost of public pensions will increase by just over 2 percentage points of GDP by 2050 (global average), with the increase particularly pronounced in emerging markets and low-income countries.
Relatively young populations in emerging markets and low-income developing countries will generate higher private saving, which will more than offset a projected decline in public saving.

Urge countries to think through the most effective pension and social safety net systems and implement necessary reforms.
Specific policy actions suggested:
- Consider curtailing early retirement to reduce long-term fiscal vulnerabilities in countries with generous public pension systems.
- In some countries, there may be room to provide more generous pension benefits; doing so would reduce the need for households to maintain high levels of saving as a precaution against old-age poverty and would reduce inequality.
Emphasis on tailoring reform priorities to country circumstances: some need fiscal consolidation of pension commitments, others could enhance adequacy to reduce precautionary private saving and inequality.

Japan provides a preview of pressures more countries will soon face from demographic change.
The paper and launch underscore the importance of pension system design for future national saving rates, fiscal sustainability, and inequality outcomes.

Source: IMF First Deputy Managing Director David Lipton, Opening Remarks to Tokyo Seminar, January 16, 2019.