ABSTRACT
Demographic changes responsible for the financing and solvency of the social safety net contribute a great deal to the political climate, because the larger part of the population is hostile to structural reform. There are also reasons to believe that demographic changes will have an indirect impact on business activity. According to sociologists, aging societies become rather sclerotic; entrepreneurship and innovation dwindle, fewer risks are taken and demand for innovation slows. According to a European Central Bank study, the possible effects of demographic change on financial markets can be quantified through simulation. Within the realm of the examples above, economic theory suggests that to protect their financial staying power, retirees should allocate a substantial portion of their savings to immediate annuities, to assure themselves against longevity risk. Insurers also maintain that governments have a role to play in promoting conditions conducive to the development of private-market solutions to longevity risk.
