RETHINKING DISTRIBUTION

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Focus on pension and retirement products and solutions According to the United Nations figures [9] , the proportion of the world’s population aged over 65 is set tomore than double by 2050, to 16.2% from7.6% currently. By 2050, approximately 1 billion people will be over 65 years. More specifically in Europe, 50% of the population will be more than 55 years old by 2050 (see figure 8). Given that a largemajority of assets under management is held by the eldest part of the population, the fund industry bears significant risks of asset outflows due to decumulation (the conversion of assets accumulated during an employee’s working life into pension income at retirement age). On the other hand, as governments are increasingly moving away frompay-as-you-go systems and as decumulation also embodies a significant new risk (longevity risk) for the record number of future retirees, significant opportunities for fund managers may arise provided that they are able to offer adequate long-term pension and retirement solutions.

In the current context, the cost of caring for retired people will profoundly affect growth prospects and will increase the level of debts. Even a consolidation of 1% of GDP per year over 20 years may not fully bring back debt to the 60%GDP reference [11] .

Figure 8

Western Europe Population (millions)

350

300

123 38%

167 50%

250

Age 22-55 Age > 55

200

150

199 62%

166 50%

100

50

0

2010

2050

Increased public pension expenditure

Source :World Bank

By 2050, for every retiree in the EU, there will be only two workers, which represents a major deterioration from the current ratio of 1:4. The ageing of the population will also affect emergingmarkets like China which will have five workers for every retiree by 2020, compared to a ratio of 1:10 in 1990. As a consequence, public pension expenditure will grow to represent on average 12.4% of the GDP in 2050 in Europe (vs. 10.3% today [10] ) and up to 16% in Spain (see figure 9).

[9] United Nations,World Population Prospects, the 2010 revision [10] The 2009 Ageing report (European Commission, 2008) [11] European Commission – Sustainability report 2009

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