GLOBAL – UBS reckons one effect of demographic ageing may be that pension funds will move into bonds – and at shorter maturities - as members get older.

“Where the impact of demographic trends on financial markets may be more apparent is through shifts in pension plan holdings,” UBS Wealth Management said.

“Under a reduced investment horizon, pension plans will likely seek to shift their asset allocation towards bonds and away from equities, and may even begin to shift their debt holdings to shorter-maturity bonds as plan participants age.”

“Overall, the described shift in portfolio composition should negatively affect equities and support bonds (i.e., help maintain low bond yields).

This effect was expected in countries with countries with well-developed pension systems, such as the Netherlands, the UK, the US, and to a somewhat lesser extent, Switzerland.

But the same dynamic could lead to an increase in equity investment in countries with a rapidly ageing population.

The Swiss bank said: “In some rapidly ageing counties that heavily rely on pay-as-you-go public pension programmes, forces will be at work that should provide support to financial market performance.

“The result will be a strengthening of the equity culture, a deepening of financial markets, and a greater demand for financial assets.” Countries in this category included Germany, France, and Italy.

UBS counters the doom-mongers, saying “countervailing forces will mitigate the negative impact of population ageing on overall economic growth per capita”.

“Even a rising transfer to older generations will leave the per capita income growth rate of the working age population at a surprisingly solid level.” And demographics would also have only a “mild impact” on financial markets.

UBS has been in the news recently for changing its CHF20.2bn (€12.8bn) Swiss pension fund from defined benefit to a defined contribution from January 2007.