Introduction

Origin
The report is prepared on the basis of instructions given by Shanila Taneem, instructor of the course (FIN 433). It is prepared by a group of six students of FIN 433 based on the topic New financial product for an aging population.

Objective
The objective of this report is to gain an idea about the financial products that are available in Bangladesh for the aging population. The report also compares and contrasts Bangladeshs market for such product with India, since both the countries have few culture differences.

Methodology
Secondary data was collected from the internet and also from various newspapers. The secondary data was the main source of the report and many articles regarding the pros and cons of such financial products in the Bangladesh economy was also very helpful. Apart from the secondary market data, other primary data was also collected by visiting few of the banks and other financial institutions where we discuss with our topic with some of the bank management and experts.

Limitations and Assumptions

Unavailability of data was a major constraint in the project preparation. Sufficient accessible data would have helped for a better understanding of the financial market and the available products. Time constraint was a key obstacle in our preparation of a thoroughly researched project. Due to lack of available time we had to make do with only the available information and not go for more extensive data. It was difficult to get information from the banks and other financial institutes, since most of the people we interviewed were busy and were reluctant to talk about the pros and cons of the different financial products.

The aging population

Demographers define population aging as an increasing median age of the population or an alternation in the age structure of the population, so that elderly populations are increasingly represented within a countries overall age structure. The world is undergoing a centuries-long demographic transition that, when complete, will leave the global population much older, on average, that is today. The transition was triggered mainly by improvement in nutrition, sanitation, health practices and medical care that have dramatically reduced infant mortality and also extended the life expectancy of children and adults. With more children living to adulthood and having children themselves, the world is going through an unparalleled period of rapid and sustained growth in population. As population and incomes have grown, however, people have begun to reduce the number of children they have. The resulting decline in the fertility rate is gradually reducing the rate of the population growth, and the world population is gradually becoming older. The timing and pace of the transition vary considerably across regions and countries over the world. Fertility rates have fallen nearly everywhere, but while they have fallen to lower levels of developed countries than in most developing countries, they are falling more rapidly in developing countries. Similarly, life expectancies have risen to higher levels in developed countries than in developing ones, and will remain higher levels for many years to come, but life expectancies have risen to nearly everywhere and currently rising more rapidly in most developed countries. In addition, immigration has contributed to population growth in some developed countries, although most other developed countries have allowed relatively little immigration. The net result of those is that, population growth rates are much higher in most developing countries than in developed ones, but growth rates are gradually declining nearly everywhere. Many developed countries that are already well into the transition have already stable or even declining populations that are rapidly aging. In contrast, many developing countries will to have much younger and rapidly growing populations for several decades to come. The differences across regions are likely to have significant effects on international economic trends. Significant uncertainties exist in timing and magnitude of the demographic transition and the shifts in population structure also.
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Sources of demographic transition

Population aging is a global phenomenon in the sense that, nearly all countries are undergoing a demographic transition that is likely to leave them, in time, with large and much older populations than they started with. The factors that are mainly responsible for the growing aging population are as follows-

Morality and life expectancy

From the late 1980s continued improvements in the living standards and sanitation lead to a gradual decline in the mortality rates and a rise in average life expectancy. Medical advances also contributed in the rapid decline in the mortality rate, especially in infant mortality. As a result, life expectancy at birth rose by one-third of a year per year. The medical advances have also contributed to reduce the mortality among the elderly, leading to increase in life expectancy for those who have already reached advanced stages.

Fertility
Fertility has already begun to decline after the decline of the mortality rates. In many of the countries, fertility rates fell to replacement levels, that is the levels that will keep the population roughly constant over time. It really helped in making the population grow at a very low rate. IN many developing countries, he fertility transition started later but often proceeded much more rapidly than the demographers expected on the developed countries experience at similar levels development.

Migration
Migration between countries can significantly affect the growth rates of the source and destination countries. Migrants, moreover, tend to be relatively young, and at least in the United States, over the past three decades, have tended to have more children than do natives.

Aging in Bangladesh
Until very recently in developing countries like Bangladesh problems associated with aging were generally perceived as issues to be considered and resolved at the level of the individual or family concerned. Among the Asia-Pacific region, Bangladesh has experienced a steady decline in mortality accompanied by modest decline in fertility. This process may have a significant impact on the well-being of older persons, especially in the less developed regions where social & financial support for the older person is largely provided by the immediate family. Now the number of elderly is rapidly increasing and the system of joint family has been changing to prefer a new system of nuclear family of husband-wife and unmarried children. The process of aging of the population is creating significant problems and consequently the issues such as public health measures and dependency ratios are required to be addressed by the policy makers in entirely different perspectives. The aging process might have started in Bangladesh. Thus, the aging situation should get due attention not only from the demographic angle but it also acquires special significance in a situation when the country swings at different levels in the continuum of tradition and modernity. Bangladesh is projected to have 9 per cent of its population of age 60 years and above in the year 2025 if the fertility target is achieved by 2005. Between 1997 and
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2010, the share of the population under fifteen years is expected to decline by about 19 per cent under the assumption of replacement level fertility; whilst the share of elderly population during the same period will increase by about 50 per cent. Similarly, the share of the working age population will increase by about 38 per cent. The aging process is expected to accelerate in the coming decades, mainly because the large cohorts born in 1950s and 1960s respectively will be joining the ranks of 60 years and over during this period. The decline in mortality, particularly at young ages, also means that a higher proportion of the large cohorts will survive to old age.

Economic effects of population aging

The economic effects of an ageing population are considerable. Older people often have higher accumulated savings per head than younger people, but may be spending less on consumer goods. Depending on the age ranges at which the changes occur, an ageing population may thus result in lower interest rates and the economic benefits of lower inflation. Some economists (Japan) see advantages in such changes, notably the opportunity to progress automation and technological development without causing unemployment. They emphasize a shift from GDP to personal well-being. In this overpopulated world, population ageing resulting from lower birth rates is a necessary first step towards reversing the unsustainable trend of overpopulation especially in those countries which are more overpopulated than others.

However population ageing also increases some categories of expenditure, including some met from public finances. The largest area of expenditure in many countries is now health care, whose cost is likely to increase dramatically as the population ages. This would present governments with hard choices between higher taxes, including a possible reweighing of tax from earnings to consumption, and a reduced government role in providing health care.

The second largest expenditure of most governments is education and these expenses will tend to fall with an ageing population, especially as fewer young people would probably continue into tertiary education as they would be in demand as part of the work force.

Linking population aging with the financial market and the impacts
One simple ingredient can make one understand how the demographic transition can affect the financial markets. People live for two periods. They work in the first period and accumulate resources, and they retire in the second period. They first period, they save and during the second period they consume their savings. The way people save for their retirement is by buying the fixed supply of capital in the first period. When a large cohort is born, more people are working and they are generating more labor income. They are generating a larger flow of saving, but they have to buy the fixed stick of capital which will help them to live when they retire. They are going to bid up of the price of the capital good. When they retire, they have to sell it to the next cohort. If that cohort is a small cohort, they will be willing to pay less to the capital stock than the large cohort paid when they bought it. The investment in the capital good will thus yield a poor rate of return for hat of the large cohort. This will leave them with fewer resources in retirement than they would have had if their cohort had been smaller and the return on their investment is greater. The bottom of the above is that there is an underlying link between the age structure of the population, the demand for assets and the prices for assets and this link changes the financial market in many ways. The impacts are as follows-

a. Reducing the asset valuation

Demographic changes, notably the entry of baby boom cohort into their traditional high saving years, contributed to the rise in stock prices in 1990s. This argument is extended to suggest that, when baby boom cohort reaches retirement, many households will try to sell off their financial assets to support retirement consumption and therefore driving down asset values. Such selling pressure could reduce the long term rate of return earned by baby boom investors on their retirement savings.

b. Effects on the asset returns

Older individuals are more risk averse than the younger ones. A rise in the average of the population would therefore be associated with the increase in aggregate risk aversion. All else equal, this will increase the required risk premium in the financial markets.

c. Increased asset holding period

The increase aging population may lead to the increase in the asset holding period. As more of the cohorts will grow old and they will want more and more to save for their future, they will keep on holding the assets as much time as possible and deprive the new cohorts to have better assets of capital stocks like them and also the market value of other assets will decline.

d. Increase in the asset price levels

When a large cohort begins to purchase assets for their retirement, it bids up the asset prices. As the demand will be higher, price will definitely rise and it will make the next cohorts to buy the assets at a higher price than they could have bought earlier as their previous cohorts took the asset prices in to a different level.

e. Composition of the financial products and services

The growing population aging is also affecting the composition of the financial product, services and assets demanded by the population. The more the population is growing older, the more they will demand higher annuities for their different deposits and investments and also want to have security in the products and services they get form the banks and the financial institutions.

Population aging and the growing demand for the financial products
The biggest challenge the financial market is facing is that, the kinds of products that that are demanded by the older populations are likely to see an increase in the demand as he population ages. For example, annuity products, long term care insurance and other products that tend to help households preserve and draw down accumulated wealth will be growth segments of the market. Today, the fraction of the financial assets that are held by the households over the age of 65 is about 31%. Running the age structure of the population forward to 2040 with the current age/ wealth profile, implies that, in 2040 the over 65s will hold about 44% of all financial assets.

The financial products in Bangladesh for aging population

Pension Scheme
Pension system in Bangladesh is mainly observed in government services. The pension issues are settled according to the rules of the Public Servants (Retirement) Act of 1974. Government has recently introduced Old Age Allowance Programme which covers small fraction of elderly people in the country who are not covered by pension system. Although limited in coverage, this is a healthy beginning of providing security to vast majority of the elderly people who are not covered by the existing pension system.

The pension system

Pension takes the form of provision of annuities for the aged. Historically, old age pensions, guaranteed by a government to its employees emerged in France in 19 th century, followed by its introduction in the UK in 1834 and in Germany in 1873. In the region constituting Bangladesh, pension for older population was first introduced in 1924, primarily for the government employees. Bangladesh government modified the pension rules for the first time in 1972. Based on that pension was provided by fixing pay on average of last 12 months salaries instead of average pay of last 36 months as was the system before. Later on, in 1974 pension was paid on the basis of a certain percent of last pay drawn instead of 12 months average pay. The maximum
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pension amount was 60% of the last pay. In 1977, by way of modification with respect to family pension and gratuity, new pension rules were announced and according to these rules the maximum pension amount was fixed at 80% of the basic pay drawn. Lastly in 1994, the government simplified the rules and regulations relating to sanctioning of the pensions of the government officials. A citizen enters into service at young age for serving the people and for the welfare of the country. S/he then spends the most valuable time of his/her life in the service and ultimately at age of 57 years retires from service because of old age. Being adjusted in routine life profile, a government servant after retirement cannot adjust with the other occupations of the society. S/he cannot normally accept any other occupation. His/her working capability gets reduced. Besides many government officials become handicapped or die because of this. His/her dependent family members face serious financial setback. There is unbeatable necessity for social security for the handicapped alive retired employee or for the dependents of the deceased employee. For this humanitarian ground the government has introduced pension, gratuity, group insurance, benevolent fund for the retired government officials and their dependents. With this system the retired persons or their dependents do not have to depend on others for their survival.

Types of Pension
According to the Bangladesh service rules different types of pension are allowed by the government for the officials of the public service. These are discussed below:

Compensation pension
This pension is provided to the officials who have lost jobs because of abolition of their posts in downsizing some offices or organizations by the government to keep these in economic size. A government servant can claim compensation pension for his/her past service. S/he is either appointed in new post or transferred to other establishments. The procedure in providing this pension involves preparing of a list of the officials losing their jobs at a minimum expenditure of the government. The important point in this case is that in abolishing the posts the income of the government has to be increased. Again in this process the income of the government has to be more than the amount of the compensation pension to be paid.

In this process, if an employee is discharged from a post after completion of service in terms of fixed service conditions; in that case s/he cannot claim any pension. For loss of any special pay pension or compensation allowance is not allowable.

Invalid Pension
If an employee becomes invalid permanently, physically and mentally, in that case the government grants him/her invalid pension. According to Bangladesh service rules if an employee applies for invalid pension before attaining 57 years of age then head of the office will process the sanction for the pension on the basis of the medical certificate as to the invalidation of the employee. An employee being less than 57 years of age shall be required to produce medical certificate for invalid pension. The certificate must contain the statement that the concerned employee is invalid for work because of old age.

Superannuation Pension
Superannuation pension take place when a public servant retires compulsorily at a certain age fixed by the government. In this context age has been fixed in the Public Service Act 1974. Accordingly an employee retires from service after completion of 57 years of age. Recently, the government has increased the retirement age for judges and public university teachers to 65 year. The major issue in the case of this pension is that the exact birth date is not always known in which case date of birth is assumed and rationality of age is lost.

Retiring Pension
According to the law of the country the government may, if it considers necessary in the public interest so to do, retire from service a public servant at any time after s/he has completed 25 years of service without assigning any reason. But any other appointing authority is not authorized to exercise this power. If any sub-ordinate appointing authority desires that an employee employed by it should retire after 25 years of service, in that case that authority shall propose to the concerned ministry to that effect. In the case of gazetted officers the issue of retiring shall be referred to the President of Bangladesh for decision.

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Optional Pension
A public servant has unqualified right to opt to retire from service at any time after s/he has completed 25 years of service upon the only condition that s/he shall have to give a notice in writing to the appointing authority at least 30 days prior to the date of his/her intended retirement. In this case the government is bound to accept the option and has no legal scope to refuse. But such option once exercised shall be final and shall not be permitted to be modified or withdrawn.

Family Pension
Pension is allowed to the family of pensioners on his/her death and this is called family pension. In the case of family pension, a public servant while remaining in service at any time afterwards may nominate one or more members of his/her family as successor for the whole or part of his/her family pension. But in the absence of nomination and if the wife of the deceased pensioner or any member of the family is not available, in that case his/her last controlling authority shall decide the successor for providing family pension and gratuity.

Retirement Benefits
Retirement is the withdrawal from ones occupation or from active works. According to one author, retirement is a time when people move from certain roles and seek other roles. The retirement benefits are provided to the retired employees of the government and parasitical organizations. A retired public servant is entitled to a number of benefits at retirement.

Gratuity
The government presently allows gratuity to the retiring person up to 80% of the emoluments of the retiree after his/her completing 25 years of pensionable service. Presently a retired public servant is allowed a gratuity in lieu of 50% of his gross pension which s/he surrenders compulsorily at the rate of Tk 200 for one taka. S/he is also allowed to surrender the remaining 50% of his/her gross pension at the rate of Tk. 100 for one taka.

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Government Accommodation
In the event of death, retirement including compulsory retirement, the retired person or his family is entitled to remain in the allotted accommodation. If the retired employee (allotte) dies while in service, his/her family shall be permitted to stay in the accommodation for two years subject to certain conditions from the date of the death of the allottee.

Benevolent Fund
If a retired employee dies during service time or dies within five years from the date of superannuation, s/he or in the event of death, his/her family, shall be entitled to receive a benevolent fund grant from the benevolent fund according to the scale specified in the schedule, for a period of ten years.

Group Insurance
Group Insurance fund has been constituted by the government. All employees except the class III and class IV employees are required to deposit premium to the Fund at the prescribed rates. This is managed by a Trustee Board. Every government employee may nominate someone for receiving money from the fund. If an employee dies while in service, his/her family will get one time financial help from the Fund. The amount of that help shall be equivalent to the pay of 24 months based on the last pay of the deceased employee. However the amount in any case shall not exceed Tk. 100,000.

Microcredit system for the older people

Microcredit is small amount of money loaned by a bank or other institution to a client. In Bangladesh this is very much popular among the villagers, especially to the women. And it is been perceived as good product also for the older people of the villages in Bangladesh. Although older age is often perceived as time of not doing any work and relying on childrens livelihood; the reality is that, in Bangladesh family support is often reduced and many older people find
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themselves in crisis. In this situation, micro credit could be a breakthrough, allowing older people to engage in income generating activities. In many cases older peoples credit worthiness is not established or accepted, but microcredit system can change the situation. If a micro finance institution extends a loan to older people, than their general credit worthiness can be established for other transactions. It is accepted that when a micro finance intuition extends loans to the older people, they are sure of the recovery. Large scales of poor older peoples in Bangladesh are engaged as unskilled wage laborers, which demands physical strength. But they can do some light works that requires a little experience and knowledge. But the main constraint they face is the investment. Many have no savings and other poor members of their family may live from hand to mouth and cannot provide investment money. So the microcredit system can actually help them to make the initial investment needed to start of a business and be a contributor to the family and not a burden.

Financial products for the aging people in India

We have selected India to find out the financial products for the aging population as the culture of India and Bangladesh is almost similar with same lifestyle patterns and also India has got the same aging population problem like in Bangladesh. The financial institutions in India have taken a lot of initiations to serve the valuable aging population and most of the older people are also taking these products and consider them very much self sufficient in the near future also. Other

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than the pension and retirement plans, the products and services that the different financial institutions are serving to the older peoples in India are as follows-

Higher interest rates on the term deposits

Established banks like the ICICI bank and HDFC bank in India provides higher interest on the term deposits of any person aged more than 60 years. The interest rate is higher than the normal savings or current accounts of the persons aging less than 60 years.

Senior citizen savings scheme

The Reserve Bank of India provides a senior citizen saving scheme where the minimum tenure of the scheme is 5 years and it can also be extended to 3 more years. The frequency of the computing interest is quarterly and the interest rate is at least 9% per annum. So for the quarterly interest computation, the aging people over 60 years can have higher returns on their savings.

Overdraft loan against the deposits

Demand Loan / overdraft against deposits are up to 90% of the deposit for the people aging more than 60 years in many banks of India.

Special cards
The senior citizens in India get a specially designed debit card with their senior citizen account in different banks. The debit card also works as a ATM card that helps to do any transaction very easily and the interest rates per annum of the cards are very low and negligible.

Other Concessions / Waivers

ATM cards shall be issued free of charge to all Senior Citizens who qualify the eligibility criteria fixed by the Bank for issue of ATM card. Free remittance facility shall be allowed by debit to savings bank accounts maintained by Senior Citizens for personal uses. Collection charges are waived on collection of outstation cheques up to Rs.5,000/- representing pension for Senior Citizens who are maintaining accounts with Rural Branches.
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Comparison between Bangladesh and India

Though Bangladesh and India share a similar culture and life style patterns and there population structure in different regions have also have some sort of similarities, but still the financial products offered by the financial institutions in India and Bangladesh is having severe difference. It is true that both Bangladesh and India are providing the pension plans and retirement benefits to the older peoples, but still the older peoples are very deprived of some products and services that should be introduced in Bangladesh also. The difference also lies in promoting the products and services also. Most of the older people in Bangladesh do not even know about having privilege of getting different financial products from different banks and if they about it, they not know where and how to get it. But in India, the older people are given the value they deserve and also products and services offered for them are very much promoted with high appeal. So Bangladesh govt. and the financial institutions should work on the financial products and services that is to be offered to older people of Bangladesh and also should do the proper promotion and keep less bureaucracy, so that the older people can have hassle free access to these products.

Conclusion
The aging population in Bangladesh and in the other countries all over the world is likely to pose some challenges and provide some opportunities. There are opportunities for the private sector institutions to take an increasing role in developing and delivering products and services to this ever increasing retirement market. There may not be commercially viable solutions attractive enough to the private sector to provide products and services to the bottom end of the market. However, if private sector involvement efficiently reduces the strain on the govt. finances in terms of providing benefits to the middle income aged group, then the state and the NGOs can focus on lower income groups. Participation between public and private sector appears to be the most effective ways to bring about solutions to the problems of the aging population in Bangladesh and also in other countries. With careful planning and thinking beyond the traditional banking paradigm, banks can re-position themselves to profitably service the retirement market while ultimately assisting to reduce public expenditure in this sector.
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References

http://www.investopedia.com http://en.wikipedia.org/wiki http://www.thedailystar.net http://bangladesheconomy.wordpress.com http://www.hdfcbank.com http://www.rbi.org.in http://www.airroc.org.tw http://www.ecb.int/press/key/date/2006/html/sp061201_1.en.html http://resources.metapress.com/pdf-preview.axd? code=h82764h250782382&size=largest http://www.springerlink.com/content/h82764h250782382/fulltext.pdf?page=1 http://www.me-jaa.com/me-jaa13oct07/dimensionpopulation.htm

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