On 4th July 2025, a half day conference was held at the National Institute of Economic and Social Research entitled “Demographics and Finance”. The conference was sponsored by the Brunel University Research Support and Development Office as a contribution to policy impact in this field. The organisers, Dilly Karim and myself, are grateful to Brunel as well as to NIESR – from whom we have received great support especially from Margherita Servente – for making the morning possible. The conference was held in a very full NIESR library, showing the wide interest of the subjects and presenters.
With contributions from some of the world’s leading authorities on population ageing, pension policy and financial markets, this conference provided a critical overview of responses to population ageing by financial markets, financial institutions and the wider economy, and the appropriate role of regulation. This high-level conference underlined the development of Brunel as a centre of research in this important field, and underlines the key role played by NIESR in national policy formation.
The conference speakers (shown above) are (from left to right); Dilruba Karim (Senior Lecturer, Brunel University of London), Charles Goodhart (Emeritus Professor in the Financial Markets Group, London School of Economics), Kevin Gardiner (Global Investment Strategist, Rothschild & Co Wealth Management), Carl Emmerson (Deputy Director, Institute for Fiscal Studies) and myself E Philip Davis (Fellow, NIESR and Honorary Professor of Banking and Finance, Brunel University of London). Sessions were chaired by E Philip Davis and Dilruba Karim.
The conference presentations addressed a rich range of topics, which we summarise briefly here – the reader is urged to look at the presentations themselves following the links below to get a deeper insight:
E Philip Davis and Dilruba Karim: Against the background of ageing of the population, driven by declining fertility and rising longevity, and drawing on a report they prepared at the request of the Financial Conduct Authority, they sought to provide an overview of effects of ageing on financial markets, including: household saving and wealth, pension provision, demand for individual financial assets, effects on asset prices and interest rates, consequences for housing, effects on banking and financial stability, and international capital flows. On balance, the literature on ageing and financial markets revealed a range of shifts in financial structure that are linked to demographics, which in turn will have consequences at a macroeconomic level and in terms of risks and returns faced by both individuals and financial institutions.
Given that we know future demographic trends with some accuracy (although errors in longevity have happened at times) these effects can be projected with a degree of authority but theory and empirical evidence suggest a degree of complexity in responses that mean confidence intervals need to be wide. Demographic effects may also be overlaid by other factors, which are at least partly exogenous to ageing, notably productivity trends and public finance developments. There is also a question of whether responses may be delayed and hence abrupt rather than gradual as markets “realise” about demographic impacts. These make the choice of policy response more complex, but neglect of the effects of ageing is not an option.
Carl Emmerson: Recommendations were presented from the final report of the Pensions Review from the Institute for Fiscal Studies, focusing on state pensions, private pension accumulation and decumulation. Key recommendations for State pension were a secure and stable system with a four-point pension guarantee to increase predictability; additional support for means-tested benefits, targeted at those approaching State Pension Age and private renter pensioners.
For private pension saving, the report calls for help for greater save across the working age population, with a near-universal employer contribution and higher total contributions for those best placed to save more. And for managing wealth in retirement it recommends simpler decisions, steering many towards “flex then fix” with an annuity in older age after a period of drawdown; and ensuring defined contribution pensions provide an income.
Charles Goodhart focused on three topics, fertility, health in old age and fiscal consequences of ageing. Fertility shifts have been most extreme in Asia and it is not clear that the “population pyramid” in countries such as China, Japan and South Korea is fiscally and economically sustainable. In contrast, it was suggested that the pyramid in most European countries was manageable. Meanwhile the key contribution to public expenditure from ageing is the difference between longevity and healthy life expectancy. This appears to be particularly large in the UK, although large gaps are common to other developed countries also.
Radical solutions to assist fertility via making housing affordable to young people could include a land tax and a tax on floor space divided by residents. Again a land tax could help the public finances, as could a higher retirement age and a lower state pension. Fertility could be addressed directly by a “no kids tax” given the cross subsidy given by families with children to those who remain childless, much larger subsidies to education and greater priority in social housing to those with children.
Kevin Gardiner sought to present a practitioner’s market-based view of issues related to ageing, with a general suggestion that our demographic predicament is much more nuanced than age profiles alone seem to suggest, and that the actual impact of demographic factors on markets is hard to isolate. The point was made that pensions, whether “funded” or explicitly pay-as-you-go, are collectively resourced from current output, and accordingly the pension system is of less importance than the size of the economy and economic growth, and the performance of the labour market. A pension pot in effect gives a “ticket to resources” in old age rather than the resources themselves.
Dependency is best considered allowing for the inactive, unemployed and children rather than just the retired. Such a wider dependency ratio suggests a significantly smaller future problem than that implied by the pensioner ratio alone, and the situation can be improved by better labour force participation as well as working hours, productivity and adjustment of retirement ages.
Regarding pension administration it was suggested that the regulation- and accounting-driven shift to bonds, and the closure of defined benefit schemes, may have been excessive and premature: the duration of equities in particular has been overlooked. And doubt was cast on the likely effects of ageing on securities prices, given the observable dominance of non-demographic factors (such as nominal growth, the cost of capital and corporate profitability).
The papers, comments and the general discussion raised further policy questions for authorities, as well as fields for further investigation by researchers. These included:
- The effects of ageing on public finances may far outweigh their effects on private saving and wealth, financial markets and institutions.
- In the UK, the shift to defined contribution funds could worsen the situation in the gilts market as demand for bonds falls.
- Whether ageing itself affects aggregate productivity – are older workers less productive – could AI make a difference?
- The welfare effects of increases in retirement age could be adverse if one allows for those already in ill health – raising the question whether there could be some flexibility to allow for such individuals?
- A higher state pension age is very unpopular, but it may raise labour force participation and the wider welfare of those in work.
- Does it matter that state pensions are increasingly subject to tax?
- How reliable is relying on property income (private rental) for retirement as opposed to pensions?
- How can the very low share of self-employed persons contributing to private pensions be increased?
- What are the future consequences of a generation saving inadequately in defined contribution pensions? Demand for a “bailout” versus working longer.
- How can gender-based pension gaps be best addressed?
- Are tax benefits to pensions excessive? Should taxation of the elderly be raised e.g. by imposition of National Insurance contributions on private pension income?
- Are there better models for finance of social care (e.g. Germany and Japan)?
- Social care is clearly an insurance issue. Why don’t insurance companies wish to provide social care insurance? Is it because of tail risk? Or wariness of international reinsurers?
- The difficulty of measuring productivity in health care. For example, if care becomes more preventative than acute, and outcomes for individuals are better, GDP is unaffected.
- Could better colocation of 3 and 4 generation families help outcomes for the elderly and hence the public finances? Singapore encourages this via the tax system.
- Could a land tax be made more palatable by allowing elderly people to pay it via their estate after death?
- Need for land or occupancy taxes to be introduced gradually since collateralisation is the foundation of the financial system.
- What are the implications of “Assisted Dying” in the overall context of ageing?
- Why are “longevity bonds” not being issued, given the natural demand for them for liability matching and annuities?
- Should fiscal policy take note of the windfall to asset holders from the secular decline in long term interest rates?
- Why don’t UK pension funds invest in UK equities? Would it be contrary to fiduciary duty for funds to raise exposure (poorer risk/return trade-off?)
- Do financial institutions and especially pension funds pay sufficient notice to the decline in cognition for many elderly people at advanced ages
Besides these overarching themes, the presenters went away also with helpful comments and suggestions for improving their papers or for future research on their topics. The online delegates were content also and several remained online for the whole session.
Links to the conference presentations are provided below – the reader is warmly encouraged to read them attentively!
E Philip Davis (Fellow, NIESR and Honorary Professor of Banking and Finance, Brunel University of London) and Dilruba Karim (Senior Lecturer, Brunel University of London), “Ageing and Financial Markets”
Carl Emmerson (Deputy Director, Institute for Fiscal Studies), “Improving pensions accumulation and decumulation outcomes"
Charles Goodhart (Emeritus Professor in the Financial Markets Group, London School of Economics), “'Demography, Fertility and the Tax Structure”
Kevin Gardiner (Global Investment Strategist, Rothschild & Co Wealth Management), “Demography, Pensions and Portfolios: an asset allocator’s perspective”
Readers may also be interested in this report on a recent event at Brunel organised inter alia by E Philip Davis and Dilruba Karim:
The Seventh Brunel Banking Conference: "Regulatory Approaches and Bank Management Strategies in a Time of Uncertainty"