Demographic change will have a profound impact on economic growth and pension systems. Assuming that productivity remains constant, the demographic transition will lead to a reduction in GDP per capita growth of 40%. Mobilising untapped labour resources by strengthening labour market participation among women and older workers, and sustaining labour migration, can help limit the impact on economic growth. To promote longer working lives, countries need to promote employability, healthy and fair workplaces for older workers, to complement the efforts they are making on pension policies.
At the same time, there is a need to diversify the sources to finance retirement to make pensions systems more resilient and sustainable. Policy makers should promote asset-backed pensions (ABP) that complement pay-as-you-go (PAYG) defined benefit public pensions to increase retirement income. Population ageing also impacts ASB but through different mechanisms than PAYG public pensions. It does so through its impact on economic growth and its effect on investment returns, and through increase in life expectancy which creates potential problems of adequacy instead of fiscal constraints. Luckily, solutions exist.
