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

_IMF News, January 16, 2019_

## Source details

**Canonical URL:** [The Future of Saving: The Role of Pension System Design in an Aging World](https://www.imf.org/en/news/articles/2019/01/17/sp011619-fdmd-the-future-of-saving)

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## Bibliographic details
- Published: January 16, 2019

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### Background and context
- 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.

### Macroeconomic channels and demographic facts
- 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.

### Key findings from the paper (high level)
- 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.

### Policy recommendations and implications
- 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.

### Closing observations
- 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.*

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## References

- [David Lipton](http://www.imf.org/external/np/omd/bios/dl.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [The Future of Saving: The Role of Pension System Design in an Aging World](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2019/01/09/The-Future-of-Saving-The-Role-of-Pension-System-Design-in-an-Aging-World-45138)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2019/01/17/sp011619-fdmd-the-future-of-saving_