Live long & prosperously

It is a truism that increasing longevity (as documented strikingly here) will put static retirement provision systems under severe stress.

It is all the more interesting to compare different institutions' approaches to the issue, as represented by UBS' recent research focus Demographics: a coming of age and Ageing and Pension System Reform: Implications for Financial Markets and Economic Policies, a November 2005 supplement to the OECD Financial Market Trends publication.

UBS evaluates ageing from a macroeconomic model point of view, apparently employing steady state equilibrium models. With these, it is attempted to establish the impact of ageing on several countries' economies as a whole (production, productivity, income, consumption), on financial markets (asset allocation, emerging markets, real estate) and on different industries (consumer, technology, health care and financials). From the magnitude of the task and the nature of the tools used, it is hardly surprising that the results of their work barely scratch the surface of the obvious. Given the study's ready understandability and pedagogic outreach to the general public, this would not be so bad, if only public policy implications were less fuzzy. There are no useful items with regards to pan-European pensions.

The OECD paper has a very different approach, given its G10 Executive target audience. Where UBS works with theoretical models, the OECD looks at empirical data and deploys microeconomic concepts to come to relevant policy conclusions. There are many interesting considerations of the current supply situation of fixed interest instruments given the ongoing shift in funds' asset management due to liability matching objectives and up to date cross country comparisons. Comparing the paper's general thrust to the Pensions Directive, it appears that the Directive is in line with state of the art best practice, especially as far as the Prudent Person rule is concerned, which it introduces to EU legislation and many member countries which have hitherto used quantitative restrictions (as are still in effect in Switzerland). This paper is an interesting read for the expert.