nep-age New Economics Papers
on Economics of Ageing
Issue of 2015‒05‒22
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Changing Population In Japan and A Life-Long Active Society To Cope With It By Atsushi Seike
  2. Demographic change in the Asian Century : Implications for Australia and the Region By Peter McDonald
  3. Liquidity in Retirement Savings Systems: An International Comparison By John Beshears; James J. Choi; Joshua Hurwitz; David Laibson; Brigitte C. Madrian
  4. Take-off, Persistence, and Sustainability : The Demographic Factor of Chinese Growth By Cai Fang, Lu Yang
  5. How Not to Regulate Insurance Markets: The Risks and Dangers of Solvency II By Avinash D. Persaud
  6. A Multivariate Model of Strategic Asset Allocation with Longevity Risk By Bisetti, Emilio; Favero, Carlo A.; Nocera, Giacomo; Tebaldi, Claudio
  7. The Challenge of Reforming Social Security in Latin America By Francisco Eduardo Barreto de Oliveira
  8. Modelling Annuity Portfolios and Longevity Risk with Extended CreditRisk+ By Jonas Hirz; Uwe Schmock; Pavel V. Shevchenko

  1. By: Atsushi Seike
    Abstract: Japan's population ageing is unprecedented in modern industrial economies. An ageing population in Japan requires policy measures to encourage lifelong social and economic participation in order to counteract a shrinking workforce and productivity declines. This paper suggests several policy tools, including pension reforms and retirement norms, that could be used to build a 'lifelong active society'.
    Keywords: Demographic Trends, Japanese ageing, Intergenerational Policy
    JEL: J11 J14 J18
    Date: 2015–04
  2. By: Peter McDonald (The Australian National University)
    Abstract: From the demographic perspective, the 21st century is the population ageing century. Population ageing is well underway in all Asian countries as a result of the spectacular falls in both fertility and mortality rates in the second half of the 20th century.
    Keywords: Demographic Trends, Asian Century, Intergenerational Policy
    JEL: J11 J14 J18
    Date: 2015–04
  3. By: John Beshears; James J. Choi; Joshua Hurwitz; David Laibson; Brigitte C. Madrian
    Abstract: What is the socially optimal level of liquidity in a retirement savings system? Liquid retirement savings are desirable because liquidity enables agents to flexibly respond to pre-retirement events that raise the marginal utility of consumption. On the other hand, pre-retirement liquidity is undesirable when it leads to under-saving arising from, for example, planning mistakes or self-control problems. This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC systems overwhelmingly illiquid before age 55.
    JEL: D14 H3 H31
    Date: 2015–05
  4. By: Cai Fang, Lu Yang
    Abstract: With the reduction of the working-age population and the increase of the population dependency ratio as the main characteristics of the demographic dividend having disappeared, China’s potential growth rate decreases. And our results suggest that demographic dividend contributed to nearly one forth of the economic growth in China in the past three decades, while TFP growth explains another one third with the remainder mainly due to capital accumulation, explaining nearly half. China’s potential growth rate will slow down—from nearly 10 per cent in the past 30 years to 7.5 per cent on average during 2011-2015—due to the diminished demographic dividend, but reform measures are conductive to clearing the institutional barriers to the supply of factors and productivity, thereby slowing the declining trend of potential growth rate. The aggregate reform dividend (e.g., relax family planning policy, postpone the retirement age, improvement of education and training, tax cut, and improvement of TFP) could reach to 1-2 percentage points on average during 2016-2050.
    Keywords: potential growth rate, Demographic dividend, reform dividend, total factor productivity
    JEL: O47 J21 C53
    Date: 2015–04
  5. By: Avinash D. Persaud (Peterson Institute for International Economics)
    Abstract: Solvency II, which the European Parliament adopted in March 2014, codifies and harmonizes insurance regulations in Europe to reduce the risk of an insurer defaulting on its obligations and producing dangerous systemic side effects. The new directive tries to achieve these aims primarily by setting capital requirements for the assets of insurers and pension funds based on the annual volatility of the price of these assets. Persaud argues that these capital requirements will impose an asset allocation on life insurers and pension funds that does not serve the interests of consumers, the financial system, or the economy. The main problem with Solvency II is that the riskiness of the assets of a life insurer or pension fund with liabilities that will not materialize before 10 or sometimes 20 years is not well measured by the amount by which prices may fall during the next year. Solvency II fails to take account of the fact that institutions with different liabilities have different capacities for absorbing different risks and that it is the exploitation of these differences that creates systemic resilience. To correct this problem, Persaud offers an alternative approach that is more attuned to the risk that a pension fund or life insurer would fail to meet its obligations when they come due and less focused on the short-term volatility of asset prices.
    Date: 2015–04
  6. By: Bisetti, Emilio; Favero, Carlo A.; Nocera, Giacomo; Tebaldi, Claudio
    Abstract: Generalized unexpected raise in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate these risks by making them tradable in the financial market. This paper extends the Campbell and Viceira (2005) strategic asset allocation model including a longevity-linked investment possibility in addition to equity and fixed income securities. Estimation of the model, based on prices for standardized annuities publicly offered by US insurance companies, shows that aggregate shocks to survival probabilities are predictors for long term returns of the longevity linked securities, and reveals an unexpected predictability pattern. The empirical valuation of the market price of longevity risk confirms that longevity linked securities offer cheap funding opportunities to asset managers willing to leverage their investment portfolio.
    Keywords: longevity risk; strategic asset allocation
    JEL: G11 G12 G22
    Date: 2015–05
  7. By: Francisco Eduardo Barreto de Oliveira
    Date: 2015–01
  8. By: Jonas Hirz; Uwe Schmock; Pavel V. Shevchenko
    Abstract: Using an extended version of the credit risk model CreditRisk$^+$, we develop a flexible framework to estimate stochastic life tables and to model credit, life insurance and annuity portfolios, including actuarial reserves. Deaths are driven by common stochastic risk factors which may be interpreted as death causes like neoplasms, circulatory diseases or idiosyncratic components. Our approach provides an efficient, numerically stable algorithm for an exact calculation of the one-period loss distribution where various sources of risk are considered. As required by many regulators, we can then derive risk measures for the one-period loss distribution such as value at risk and expected shortfall. Using publicly available data, we provide estimation procedures for model parameters including classical approaches, as well as Markov chain Monte Carlo methods. We conclude with a real world example using Australian death data. In particular, our model allows stress testing and, therefore, offers insight into how certain health scenarios influence annuity payments of an insurer. Such scenarios may include outbreaks of epidemics, improvement in health treatment, or development of better medication. Further applications of our model include modelling of stochastic life tables with corresponding forecasts of death probabilities and demographic changes.
    Date: 2015–05

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