• The world economy is expected to grow by 3.0 per cent in 2016, an unchanged forecast from the May Review. However, world growth in 2017 is revised down to 3.3 per cent from 3.5 per cent.

• A number of financial sector risks remain. Many large Euro Area banks are fragile, with the banking system in Italy particularly weak. This is likely to test the viability of the Single Rulebook covering financial services.

• Inflation is likely to be below target in the OECD economies in 2017. The European Central Bank (ECB) stands ready to ease monetary conditions while the Federal Reserve is likely to raise interest rates very gradually.

• GDP is expected to grow by 1.7 per cent in 2016, slowing to just 1 per cent in 2017. GDP is likely to decline by 0.2 per cent in the third quarter of this year and there is a risk of a further deterioration.

• Inflation is forecast to increase significantly, peaking at just over 3 per cent at the end of 2017. The Bank of England is expected to ‘look through’ this temporary rise and ease monetary policy substantially in the coming months.

• Government announcements have effectively ‘over-ridden’ the Fiscal Charter and borrowing is expected to increase by an additional £47 billion over the period 2016–17 to 2020–21.

The production of this forecast is supported by the Institute's Corporate Members: Bank of England, HM Treasury, Mizuho Research Institute Ltd, Office for National Statistics, Santander (UK) plc and by the members of the NiGEM users group.

This paper considers the evolution of the UK's pension programme in the light of various stated rationales for public intervention. It argues that the publicly-provided (tax-financed) pension programme has gone through four distinct stages since 1946. It examines some of the issues that have arisen in the context of private pension provision in the UK, both in the form of so-called ‘defined benefit’ and ‘defined contribution’ pension plans, as well as individual purchases of annuities.

Responding to the challenges of demographic ageing, the German system of old-age provision has undergone substantial changes during the past two decades and is in fact still under reconstruction. Benefit levels deriving from the public pay-as-you-go scheme will decline until 2060, while contribution rates may still go up substantially. Additional cover from private or occupational pension schemes is urgently needed. Thus far, steps in this direction have been half-hearted. The continuing crisis in financial markets and a more profound distrust in financial institutions and market-based instruments of old-age provision currently create obstacles to progress with this overhaul. Nevertheless, despite the differing traditions, Germany could learn important lessons now from other developed countries that have longer experience of funded pensions.

In times of decreasing mortality, one way to stabilise a PAYG pension system is to interrelate the retirement age to the anticipated average lifespan. This paper investigates two approaches for Germany: one is to keep the average retirement duration constant, the other to define a constant share of the total lifespan for the retirement period. Our simulation model uses a Leslie matrix population projection, a Solow-Swan growth model and a detailed calculation of the German pension insurance budget. Our results show quite a significant impact on the insurance level and a rather small effect on the contribution rate, which is characteristic of a Bismarckian system.

We estimate the changing value of workplace pensions in the UK and incorporate their value into an estimate of the public sector pay differential. Falling pension membership in the private sector and growing value of public service pensions led to a significant increase in the estimated public sector pay differential from 1997 to 2009, even though headline pay grew faster in the private sector. From 2009 to 2012, although pay grew faster in the public sector, reforms to public service defined benefit pensions, particularly indexation to the CPI rather than RPI, significantly reduced the public pay differential.

Radical changes have been implemented to pension schemes across the UK public sector from April 2015. This paper simulates how these changes will affect the lifetime pension and how the negotiated pension changes compare across six public sector schemes by level of education. Specifically, we simulate the occupation specific Defined Benefit (DB) pension wealth accumulated for a representative employee over the lifecycle by factoring in the recent changes to pension conditions. We find that less educated workers with low or moderate earnings in the NHS, Local Government and Civil Service schemes are the winners having secured an increase in the value of their pension of between 10–20 per cent. Graduate workers with faster wage growth in the Civil Service, Teachers and Local Government schemes lose between 3 per cent and 5 per cent. This is in sharp contrast with the Police and Fire services who have lost around 40 per cent irrespective of their education.

This paper investigates the effect of recent regulatory changes to the compulsory annuitisation of tax-privileged pension savings, on the demand for annuities and other retirement products. We find that the demand for annuities has fallen by almost 75 per cent from its peak in 2012, and the demand for income drawdown products has increased. There is some evidence that people at younger ages and with smaller pension pots are choosing not to annuitise, and hence the average size of an annuity purchase has increased.

This paper explores the extent to which annuitants might be prepared to pay for protection against cohort-specific mortality risk, by comparing traditional indexed annuities with annuities whose payout rates are revised in response to differences between expected and actual mortality rates of the cohort in question. It finds that a man aged 65 with a coefficient of relative risk aversion of two would be prepared to pay 75p per £100 annuitised for protection against aggregate mortality risk while a man with risk aversion of twenty would be prepared to pay £5.75 per £100; studies put the actual cost at £2.70–£7 per £100, suggesting that unless annuitants are very risk averse it is likely that existing products tend to over-insure against cohort mortality risk.