Demographic changes in CEE countries are pronounced. Overall populations and especially the working-age population will decline significantly in almost all countries considered in this study. This affects growth possibilities and the developments of public expenditures. Over the coming decades those in work will have to support a sharply rising proportion of retirees. This will be mitigated somewhat by the fact that in CEE countries the old, payas-you-go financed pension schemes have been replaced by moremodern multi-pillar pension schemes with substantial funded elements. Apart from pension spending, ageing populations also push up costs for health and long-term care, too. On the otherhand, the CEE countries have a high income growth potential and for the next 25 years this will probably more than offset the adverse effects due to demographic change.

Everywhere, private provision for old age is becoming more important. There is scarcely a country in Europe where demographic development has not already led, or will lead, to cuts in the level of state pensions. Fully funded private and occupational pension plans are becoming an ever more vital source of financial security in old age. Even in the United States, which is in a much more favorable demographic situation than Europe, the government is moving for the partial conversion of pay-as-you-go (PAYG)pensions to a more fully funded type of retirement-income regime. What possibilities do people have of stocking up dwindling payments from PAYG pension systems with their own assets? How do the United States and the EU-15 compare?

The relationship between demographic change and asset price performance is the subject of intense debate, particularly in the US. A theory known as the "asset market meltdown hypothesis" presupposes a close positive correlation between changes in the working population and price performance on, say, the equity markets. In a stringent model based on a closed economy this makes sense. But once the model is supplemented with supply-side and external factors, the results are different. These results are backed up by empirical studies.

Following decades of rising prosperity private households have now accumulated total gross assets to the tune of almost EUR 10trillion and more and more older people have their stake. As personal wealth grows in Germany, so transfers of inherited assets are becoming increasingly important. Real property, financial assets and durables worth a good EUR 1 trillion are expected to be bequeathed by 2010. This means that each year wealth holdings in excess of total saving by the household sector will be transferred. While legacies do not create new wealth in macroeconomic terms, substantial structural shifts can nevertheless take place at the individual level.