jens thomsen : ultra long - term financial instruments speech by mr jens thomsen, member of the board of governors of the national bank of denmark, at the oecd seminar : ” the pension payout phase : annuities and implications for financial markets ”, paris, 12 november 2008. * * * prologue today i have two messages for you : the positive news is that people today live longer than ever before. however, this implies that if people are not working longer, they may outlive their financial reserves and may at some point need to reduce their standard of living, cf. slide 2. prologue i have two messages for you today : the positive news is that people today live longer than ever before at the same time they may outlive their reserves and may at some point need to reduce their standard of living danmarks nationalbank introduction during the last half century the ageing of world population has increased rapidly. on one hand, the decrease in fertility rates in past decades and on the other the higher life expectancy at older age have caused a sharp increase in the current old age dependency. the trend of population ageing shows no sign of a turn, quite the opposite : the world population is expected to age at increasing speed, cf. slide 3. old - age dependency is rising sharply age distribution asia % europ e % % 0 - 14 ( % ) north am erica 15 - 64 ( % ) 65 or over ( % ) source : united nations danmarks nationalbank living longer in good health is a fantastic accomplishment from the society to which improvements in health care, nutrition and sanitation have contributed, cf. slide 4. on the other hand, the increasing life expectancy – in particular the increasing life expectancy at retirement age – poses challenges to individuals, governments, labour markets and life insurance and pension sector, cf. slide 5. longevity risk is the risk that individuals will live longer than statistically expected years li f e expect ancy a t birth advances in health care, nutrition and sanitation have increased life expectancy nordic count ries source : oecd eu - 15 usa danmarks nationalbank in particular, the increase in life expectancy at retirement age can be a challenge for carriers of longevity risk years lif e e xpectan cy at ag e o f 65 nordic count ries m ales eu - 15 m ales us males nordic count ries females eu - 15 females us females source : oecd danmarks nationalbank demographic

in the swedish labour market which may explain the high level of unemployment. these problems cannot be solved by monetary policy. monetary policy ’ s effects on unemployment are minor in relation to those due to structural problems. the current situation in the labour market let me before i finish briefly comment on how i viewed the current situation in the labour market in connection with the monetary policy meeting in may. a large number of central wage agreements are being renegotiated this year. there are several factors governing how high wage costs can be expected to be in future. one important aspect is to what extent the social partners take into account the labour market situation in their wage bargaining rounds. another is how well the labour market functions with regard to matching the demand for and supply of labour. the wage bargaining rounds have so far resulted in wage increases that appear to be slightly above what we had estimated in the february monetary policy report. we pointed this out at the monetary policy meeting on 3 may. the labour market situation has strengthened and it is therefore reasonable to assume in future that there will be slightly higher wage increases than we have been used to in recent years. the information that we had access to at our monetary policy meeting in may indicated that resource utilisation in the labour capacity was slightly more strained than we anticipated in the february report. there were signs that the labour shortage in the business sector has continued to increase. however, see, for example, ljungqvist, l and t j sargent ( 2006 ), ” how sweden ’ s unemployment became more like europe's ” in freeman r, b swedenborg and r topel ( ed ), ” reforming the welfare state – american perspectives on the swedish model ”, sns forlag. it is not exactly easy to assess the level of resource utilisation in the labour market. there are many indications of fairly large labour reserves in total, although this may not be reflected in the recently agreed wage increases. employment appeared to be developing in line with the forecast we made in february. however, the labour supply was showing weaker development than we had expected. altogether, this means that unemployment has been slightly lower than we assessed in our forecasts in february and the labour market situation is therefore slightly more strained. our assessment in may was that on the whole, the repo rate would need to be raised gradually and by more during the forecast period than was indicated by the forecast we made in february. i did not consider the changes in the economic outlook to be so