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2 (1) 2012

Implications of an aging population on pension systems and financial markets


Author - Affiliation:
Tristan Nguyen - Chairholder at the Department of Economics, WHL Graduate School of Business and Economics in Lahr/Germany. He holds a PhD degree in Economics and a Habilitation (post-doc qualification) in Economics and Insurance Management from the University of Hagen after obtaining Master degrees in Economics, Business Administration, Laws and Mathematics. His fields of research include Financial Regulation, Public Finance, and Insurance Accounting
Ralf Stützle - Research Fellow at the Department of Economics, WHL Graduate School of Business and Economics in Lahr/Germany. He holds a PhD degree in Physics and a Master of Business Administration (MBA). His fields of research include Public Finance and Social Security.
Corresponding author: Ralf Stützle - tristan.nguyen@whl-lahr.de

Abstract
In this paper, we introduce a macroeconomic model of overlapping generations to analyze the impacts of the demographic changes as well as the interactions between pension system, bond and stock markets. Furthermore, we examine how the pension system influences the distribution of wealth, consumption and saving within generations.
In the context of this model, we show a drastic decline of capital market returns due to an aging population. Moreover, we examine the impacts demographic changes can have on individuals’ welfare for an existing pay-as-you-go pension scheme. Raising the pensionable age combined with a decrease of the contributions seems to be the best policy. On the other hand, increases in contributions as a result of demographic changes show the highest welfare losses. Taken into account the recent pension reforms in Germany, raising the retirement age or a faster transition from a pay-as-you-go pension system to a capital funded one would make sense. But it is questionable whether such a policy will be enforceable with an aging electorate.

Keywords
Pension Scheme; Demographic Change; Interest Rate; Overlapping Generations

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DOI: https://doi.org/10.46223/HCMCOUJS.econ.en.2.1.65.2012
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