Finansial Tools to maintain the welfare society

Dr.oec. Banku Augstskolas asociētais Profesors Aija Graudiņa

2013.March 2

Definition of the economy situation in post-industrial

societies:

• The Credit crisis;

• Low economy activity;

• Worring unemployment levels in some areas.

• (Bruno Pfister 2012.)

2013.March Bruno Pfister 2012.)

2013.March 4

ELEPHANT IN THE ROOM

The biggest challange of them all:

AN AGEING POPULATIONAN AGEING POPULATIONBruno Pfister 2012.

2013.March 5

ELEPHANT IN THE ROOM

The Unated Nations study :

In the 2050

22%22% OF THE WORLD POPULATION

OVER

60 YARS OF AGE60 YARS OF AGE

2013.March 6

ELEPHANT IN THE ROOM

Life expectancy Life expectancy

(LONGEVITY) (LONGEVITY)

NOT THE CATASTROPHE

IS POSITIVE AND FORMIDABLE CHALLANGE FOR EVERYONE

2013.March 7

People of olde age, over 60, 70 and 80 have always existed – representing a

minute minority.

Orio Giarini 2013.

ELEPHANT IN THE ROOM

2013.March 8

2013.March 9

ELEPHANT IN THE ROOM

• From the begining of the 20th century the poor and the illiterate have become minority after having been for centuries a majority.

2013.March 10

ELEPHANT IN THE ROOM

21 st century-lengthening of the life cycle is a unique revolutionary phenomen.

2013.March 11

LIFE EXPECTANCY-LONGEVITY CHALLENGES

Longevity risks:Longevity risks:

• Health situation;

• Possible long-term care;

PatricM.LIEDTKE 2010.

2013.March 12

LIFE EXPECTANCY-LONGEVITY CHALLENGES

Longevity risks ex ante:Longevity risks ex ante:

• What entitlements are worth?

• What kind of products and services might be available in exchange for future capital as it is used up?

• At which price?

The countdown to retirement

• Acording to survey from HSBC , which polled more then 15 000 people in the 15 countries,

• 5% of polled think that they are prepearing adequatly for a comfortable retirement;

• 23% - preparing adequatly for retirement;• 33% - not adequatly prepearing for retirement; • 34%- not at all prepearing for retirement.

(Christine Foyster,HSBC” THE TIMES” 02/20/13)

2013.March 13

The countdown to retirement

Once you are fully retired, what proportion of your retirement income do you expect will be funded from each of the following sources?

(Christine Foyster,HSBC,02.20.2013.)

2013.March 14

ssourcessources

11 Company pensions

2.2. Selling a business

3.3. Property income

4.4. Inheritance

55 State pension/benefits

6.6. Investments

7.7. Financial support from family or friends

8.8. Other tools,e.g.windfall

9.9. Personal pensions

10.10. Lottery

11.11. Cash savings/deposits 152013.March

2013.March 16

The countdown to retirement

sourcessources %%1.1. State pension/benefits 42.02.2. Company pensions 25.03.3. Personal pensions 10.04.4. Cash savings/deposits 9.05.5. Properety income 5.06.6. Inheritance 4.07.7. Investments 3.08.8. Financial support from family or friends 0.59.9. Other tools,e.g.windfall 0.51010 Lottery 0.511.11. Selling a business 0.5

Sorces of capital in Latvia

• STATE PENSIONSTATE PENSION• STATE FUNDED STATE FUNDED

PENSIONSPENSIONS• PERSONAL PERSONAL

PENSIONS:PENSIONS:

1.1. Pension fundsPension funds

2.2. Insurance Insurance

2013.March 17

2013.March 18

PLANNED AND ACTUAL CAPITAL TIER 2

in Latvia 2006.-2010. %,Ls

Year ActualActual statutory rate,

%

Actual Actual statutory rate,Ls

Statutory rate before before

change,%

Statutory rate before before

change,Ls

2006 2.0 41.3 2.0 41.3

2007 4.0 112.3 4.0 112.3

2008 8.0 265.8 8.0 265.8

20092009 2.02.0 164.7164.7 9.09.0 741.2741.2

20102010 2.02.0 65.965.9 10.010.0 329.5329.5

2013.March 19

SORCES OF CAPITALSORCES OF CAPITAL

• STATE FUNDED STATE FUNDED PENSIONS-Tire2PENSIONS-Tire2

1 149755 1 149755

participantsparticipants

• PERSONAL PERSONAL PENSIONS-Tire3 PENSIONS-Tire3

193 500 participants193 500 participants

2013.March 20

conclusions

1. The biggest challange of the 21st century: an ageing population (longevity);

2. Longevity risks: health situation and possible long-term care;

3. Longevity risks ex ante: What entitlements are worth? What kind of products and services might be available in exchange for future capital as it is used up? At which price?;

4. The main sorces of retirement capital: state pension, company pensions, personal pensions (Pension funds, Insurance)

2013.March 21

solutions

1.The Four Pillar Pension Programme

2.The Four Pillar_ Share of income from the four pillars of people over 65 years ;

3.Life cycle: a new distribution of activities;

The Four Pillar –research Programme

• The 1st pillar- STATE PENSION;

• The 2nd pillar-OCCUPATIONAL PENSION;

• The 3rd pillar- INDIVIDUAL PENSION;

• The 4th pillar-FLEXIBLE EXTENSION OF WORK-LIFE

• ( The Geneva Association 1987)

2013.March 22

2013.March 23

Shere of income from the four pillars of people over

65 years 20002000 20202020

First Pillar55%

Second Pillar30%

Third 10%

First Pillar40%

Second Pillar35%

Third 10%

Fourth 15%

2013.March 24

Live cycle: A NEW DISTRIBUTION OF ACTIVITIES

Traditional distribution of activities

Modern distribution of activities

Educ-ationandtraining

Work Retir-ement

Education and training

Work

Family,leisure,community

2013.March 25

Paldies par uzmanību !Paldies par uzmanību !aija.graudina@ ba.lv ;aija.graudina@ ba.lv ;