New Zealand’s population will continue to age over the next several decades. The economic impact of an ageing population is likely to be gradual. However, it is important for financial entities to understand and be prepared to manage the changes and any potential risks from an ageing population.
Key findings
- Overall savings are expected to increase as older workers prepare for retirement.
- Changes in savings behaviour will impact interest rates. An older population has contributed to lower neutral interest rates in recent decades and is expected to continue putting downward pressure on interest rates in the near term. Other factors could offset this impact, making projections of the neutral interest rate uncertain.
- The strength and speed of monetary policy transmission to the real economy may change. Increased expenditure on healthcare and superannuation will impact fiscal policy.
- Lower interest rates could increase prices of assets such as housing and equities, but lower risk appetite of older investors may increase demand for less risky assets. The types of houses in demand could change.
- Banks’ lending and funding may be impacted by population ageing. Deposit funding may increase, while credit demand for housing could decline. If demand for housing loans declines, banks may increase other types of lending or expand provision of other services, such as wealth management.
- Demand for insurance products may change, with lower demand for life insurance and higher demand for health insurance due to higher healthcare needs.
Figure 5 - Transmission channels of an ageing population to the financial system
An ageing population can impact the financial system through several channels as seen in this chart. The impacts could change the nature of the financial system and the services it provides.
