Population ageing in New Zealand: Implications for living standards and the optimal rate of national saving

Over the next 50 years, New Zealand's population will age substantially. There has been wide debate about whether New Zealand should prepare for population ageing by increasing national savings. This question is addressed by choosing time paths for consumption, savings and debt, through the use of a Ramsey-Solow model of optimal saving, adapted for investigating problems of population ageing. The simulation results suggest that population ageing alone would not justify increases in national savings rates beyond those envisaged by current policy. The cost of ageing in terms of reduced real consumption is not large enough to justify large additional savings, and the concomitant reduction in current consumption.