The Economics of Aging, Pensions and Savings

Abstract

Population aging challenges the financial sustainability of social security systems and increases the individual responsibility for old-age support. This course provides an overview of the economics of savings and pensions, introducing the theoretical and empirical tools to analyze topical questions about how individuals save and plan for retirement, and to evaluate the effect of pension policies.

Objective

This course aims to enable students to: - understand the basic economic aspects related to population aging, identify the mechanisms through which the demographic transition challenges the provision of public pensions and discuss reform options; - demonstrate knowledge of the structure and functioning of public and private pension systems, and apply it to the analysis of real-world pension systems; - be familiar with the life-cycle model of consumption and savings, its empirical successes and failures; - analyze and evaluate, using the relevant theoretical and empirical tools, economic issues in the provision of pensions and how pension policies affect individual choices; - critically discuss topical questions about individual savings and retirement behavior.

Content

The lectures include student group presentations and discussions of real-world examples and evidence from research papers. The course is broadly organised in three parts: 1) Population aging and the pension system The first part of the course provides an overview of causes and economic consequences of population aging, presents an account of public and private pension systems and discusses options for reform. Topics include: - measurement, causes and economic consequences of population aging; - rationales for government intervention and design of public and private pension systems; - pension reform options; - analysis of the current situation of different countries’ pension systems around the world. 2) Intertemporal models of individual behavior The second part introduces students to the theoretical tools for understanding and examining the economic determinants of savings and the implications of pension policies on individual choices. Students can apply the methods presented in class during complementary computational sessions. Topics include: - the life cycle model; - precautionary savings; - portfolio choices; - empirical evaluation of the model. 3) Social security and individual behavior In the third part, the course presents and discusses theoretical predictions and empirical evidence on how individuals save and plan for retirement, the role of social security, and the effect of pension policies. Topics include: - relation between social security wealth and private wealth, the effect of pension reforms; - adequacy of savings; - retirement saving incentives and individual behavior; - retirement choices; - longevity risk and annuities; - the role of limited financial knowledge.

Resources