This paper extends Gertlerís (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure. The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing. When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, e¢ ciency losses induced by demographic change can be considerable. Stochastic simulations suggest that lengthening of working time has only a modest alleviating e§ect on the Öscal burden of ageing. This is based on the observation that only a small fraction of stochastic variation in an endogenously determined contribution rate is explained by stochastic variation in the length of working time. Variation in life expectancy is clearly much more important.