The Future of Saving

Abstract

EXECUTIVE SUMMARYOver the coming decades, declining fertility and increasing longevity will profoundly change the population age distribution in many countries, albeit at different paces. The fiscal consequences of this demographic transition have received considerable policy attention around the world, but what implications will it have for saving rates across countries? What role does the design of retirement systems play?This discussion note investigates how impending demographic shifts and the design of pension systems could influence future national saving. National saving-the sum of public and private saving in a country-is the main source of financing for domestic investment, even in a world with high capital mobility. It also plays a crucial shock-absorbing role, with implications for growth and economic stability. In countries with aging populations, national saving is important to bolster retirement security and allow workers to more easily bear the costs of financing pension programs while maintaining their living standards. This note focuses on the interplay between public and private saving, and the role of pension system attributes (coverage of the elderly, benefits, and the type of funding) in shaping saving profiles across countries in the coming decades.Under current policies, public pension outlays in advanced and emerging market economies will increase by an average 1 and 2½ percentage points of GDP, respectively, by 2050. Without adjustment in taxes and other spending, this increase will lead to a commensurate decline in public saving. In many advanced economies, younger people will have to save significantly more and postpone retirement by a number of years to enjoy pension benefits similar to those of today's retirees. While countries with aging and shrinking working age populations are projected to experience a more significant drop in national saving than those with younger populations, the design of pension systems will affect the evolution of saving. Private saving will decline more precipitously in countries with generous public pension systems, as people will rely less on their own savings when they retire. All else being equal, private saving is projected to increase in countries that include a defined contribution scheme as part of their pension systems. Measuring saving, accounting for the effects of uncertain demographic changes, and predicting the future of such trends are inherently challenging endeavors. The projections in this note should be considered illustrative, and they do not include an opinion on the optimal saving rate or the desirable level of pensions.

A Re-examination of the Validity of the Life Cycle Hypothesis (LCH): Evidence from Emerging Europe

“…Kuijs (2006) found evidence in China that savings rates are influenced significantly by certain determinants such as GDP per capita, credit to GDP ratio, real interest rate, public savings, old age dependency ratio, and share of industry in GDP, which are shown to be statistically significant. Amaglobeli et al (2019) found a negative and statistically significant relationship between the old age dependency ratio and private savings in 80 countries across the world by confirming the predictions from the life cycle model. Aron and Mihaescu (2014) explored the main variables of population savings in six CEE countries between 1995 and 2010.…”

“…The importance of demographic variables in the determination of savings may be confirmed by the findings of recent empirical research conducted by Deaton and Paxson (1992), Bosworth and Chodorow-Reich (2006), Ozcan, Gunay, and Ertac (2003), Horioka and Wan (2007), Gani and Yasin (2010), and Amaglobeli et al (2019). They empirically tested LCH and confirmed certain earlier findings that an increase in savings was caused by a higher rate of growth.…”

“…In this context, many authors have tried to determine the importance of the age structure as a determinant of savings behavior using the following arguments: a high proportion of working-age population in any country can lead to a high rate of savings, because employers work longer and save more over their lifetimes to increase income for their post-retirement lives (Yashiro & Oishi, 1996;Leff, 1969;Edwards, 1996;Callen & Thimann, 1997;Cruz & Ahmed, 2016;Amaglobeli et al, 2019).…”

“…The next explanatory variable included in the model is unemployment as a share of unemployed people in the total labor force (UNEMP). It is assumed that a rise in unemployment leads to lower savings because it makes saving less affordable (Callen & Thimann, 1997;Doker et al, 2016;Amaglobeli et al, 2019 (Smith, 1999). Also, Attanasio, Bonfatti, Kitao, and Weber (2016) believe that improvement in health quality leads to a rise in longevity and improvement in life expectancy.…”

Assessment of opportunities to improve the efficiency of the pension system of the Russian Federation

“…Общей проблемой функционирования пенсионных систем является старение населения, данной проблеме уделяется внимание в работе М.Д. Амаглобели и его коллег [8]. Некоторые авторы, например, Ф. Чыбалски [9], изучают вопросы оценки эффективности пенсионной системы, другие, к примеру, Н. Ковал [10] [12].…”