Demographics study, more saving urged by speakers
Money managers and policymakers have to do a better job of understanding demographics before working on retirement solutions, said Amlan Roy, managing director, head of global demographics and pension research at Credit Suisse AG.
Mr. Roy said executives at pension funds, central banks, insurance companies, endowments and foundations, and other investors “do not understand demographics ... from the time we are born to the time we die, we are consumers,” he said. “We need to understand consumerism,” he said. “Demographics is about consumers and workers.”
The richest age group, people 65 to 74, have the most financial resources, but the age group of 80 and above is growing at four times the rate of the total population.
“The retirement age of 65 no longer works for a world where people are living into their 80s,” he said.
But raising retirement ages is not the total solution because a higher age doesn't work for all occupations. Mr. Roy challenged money managers to develop “new solutions for clients” to help to address increasing longevity.
“The products we need for a 65-year-old will be very different for 85-year-olds,” he said.
Due to changing demographics around the world, Mr. Roy said he was bullish on six sectors for investing: pharma and biotech, financial services, leisure and luxury, natural resources, infrastructure and emerging markets. The financial services sector needs to develop products that don't exist now, including new ways of delivering pensions and insurance, he said.
Money managers could also prompt an estimated 63 million additional people to save for retirement by pressing governments to change tax policies to ensure that lower-paid workers have incentives, such as tax credits, said Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School in New York. “Use your power as investors to make sure we have a national retirement security policy.”
Ms. Ghilarducci was one of four economists debating global policy at the conference. While they largely agreed that low growth will continue to be a reality for the near future, they disagreed on ways to spur growth.
Economist Stephen Moore, a visiting fellow at the Heritage Foundation in Washington, said government intervention doesn't work as a job stimulus. Arthur Laffer, chairman of Laffer Associates, Nashville, Tenn., acknowledged growing income inequality but warned that attempts at redistribution “always reduce total income.” Instead, Mr. Laffer called for a low, broad-based flat tax, restrained government spending and regulation and free trade.
“Then get the hell out of the way and let the markets solve the problem,” he said.
However, stimulating economic demand will be hard for most governments struggling with “huge debt overhangs,” said Megan Greene, chief economist and managing director of Manulife Asset Management in Boston. Living in “an age of oversupply of everything means low growth for many more years,” Ms. Greene said.
The economists also agreed that the Federal Reserve will raise interest rates as early as December, but Mr. Moore cautioned that if the increase is too large, “we're very vulnerable to an interest rate shock.”
On an optimistic note, Mr. Moore said he expects “the biggest boom in the United States you've ever seen” on the horizon for the U.S. manufacturing sector due to the recent energy boom, which also is benefiting housing, the economists said.
“Careful infrastructure policies and leadership would also help the manufacturing sector,” Ms. Ghilarducci said.
Sophie Baker and Robert Steyer contributed to this story.
This article originally appeared in the June 29, 2015 print issue as, "Lessons for solving the retirement crisis".