IMF / RETIREMENT

In a new report, the IMF says individuals and governments may be underestimating the financial impact of longer life expectancies. IMF

• Categories: News & Features / News Stories / Unifeed
• Video Length: 00:01:42
• Production Date: 11 April 2012
• Asset Language: Original
• Corporate Name: INTERNATIONAL MONETARY FUND - IMF
• Subject Topical: ECONOMICS; ECONOMIC CONDITIONS; ECONOMY; ECONOMIC DEVELOPMENT
• Geographic Subject: UNITED STATES
• MAMS Id: U120411e

Description

STORY: IMF / RETIREMENT
TRT: 1.42
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 11 APRIL 2012, WASHINGTON, DC

Shotlist

11 APRIL 2012, WASHINGTON, DC

1. Wide shot press conference
2. SOUNDBITE: (English) Laura Kodres, Assistant Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“Nearly all countries have underestimated continuously by how long people will live by as much as three years. Unexpected longevity risk is not just a risk for individuals, but also for those that provide guaranteed retirement income: defined benefit pension plans, insurance companies that provide annuities and governments if they provide universal old age pensions.”
3. Cutaway, reporters
4. SOUNDBITE: (English) Laura Kodres, Assistant Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“The size of longevity risk amounts to roughly 50 percent of 2010 GDP in advanced economies and 25 percent of GDP in emerging economies. In dollars this runs into the trillions.”
5. Cutaway, reporters
6. SOUNDBITE: (English) Laura Kodres, Assistant Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“The same holds for longevity risk. Relatively modest measures can be taken now to start dealing with it, but the longer we wait, the more dramatic and potentially disruptive measures have to be taken in the future.”
7. Cutaway, reporters
8. SOUNDBITE: (English) Laura Kodres, Assistant Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“At the same time that demand is rising, the supply of traditional, and not so traditional, safe assets is falling. The creditworthiness of sovereign debt in a number of advanced countries has suffered from fiscal strains, impairing some of their safety features. Other sources of safe assets produced in large numbers before the crisis, such as securitized products, turned out to be not so safe after all.”
9. Med shot, reporters

Storyline

In a new report, the International Monetary Fund finds that if average life spans were to increase three years more than is now expected, the already high cost of aging would increase by 50 percent.

“Nearly all countries have underestimated continuously by how long people will live by as much as three years. Unexpected longevity risk is not just a risk for individuals, but also for those that provide guaranteed retirement income: defined benefit pension plans, insurance companies that provide annuities and governments if they provide universal old age pensions,” said Laura Kodres, an Assistant Director of the IMF’s Monetary and Capital Markets Department.

The IMF says that given the size of the financial impact, more attention needs to be paid to this issue now before the problem gets worse.

“The size of longevity risk amounts to roughly 50 percent of 2010 GDP in advanced economies and 25 percent of GDP in emerging economies. In dollars this runs into the trillions,” Kodres said.

The IMF says that offsetting the financial effects of longer life will likely require a combination of increasing retirement ages, higher contributions to retirement plans, and a reduction in benefits. The IMF says the key is to begin it now rather than delay until the problem mushrooms.

“The same holds for longevity risk. Relatively modest measures can be taken now to start dealing with it, but the longer we wait, the more dramatic and potentially disruptive measures have to be taken in the future,” Kodres said.

In a parallel study, the IMF found that the price of assets regarded as safe is on the rise, with supply dwindling and demand rising amid uncertainty in financial markets, regulatory reforms, and increased demand from central banks in advanced economies.

“At the same time that demand is rising, the supply of traditional, and not so traditional, safe assets is falling. The creditworthiness of sovereign debt in a number of advanced countries has suffered from fiscal strains, impairing some of their safety features. Other sources of safe assets produced in large numbers before the crisis, such as securitized products, turned out to be not so safe after all,” Kodres said.

The IMF says that growing demand and shrinking supply of safe assets—typically predominantly government bonds—could have negative effects on global financial stability.