Managing the demographic risk of pension systems (original) (raw)
Related papers
Population aging and financial and social sustainability challenges of pension systems in Europe
The Future of Multi-Pillar Pensions
This chapter examines the economic and demographic factors that threaten the viability of European pension systems over the next 50 years. In the short to medium term, the principal challenge is indeed a structural rebalancing of public finances, by applying austerity measures and reducing reliance on debt-financing, while at the same time promoting jobs growth and minimizing adverse impacts on vulnerable population groups. In the longer term, population aging remains the key challenge, although its magnitude, speed and timing vary across the European countries under review. Longevity gains and falling fertility levels, especially in Central and Eastern European countries where emigration is another contributing factor, imply that the cohorts of elderly are growing in number just as the cohorts of working population supporting them are starting to decline. The implications on the size and shape of public services and finances as well as on future growth and on living standards are considerable. This chapter argues that a review of fundamentals is required, for all concerned-individual countries as well as EU institutions-in moving forward, by examining whether, and how, recent policy reforms compromise the pension income adequacy of future retirees, and what policies can improve the prospects for both the financial and social sustainability of public pension systems.
Ageing, Demographic Risks, and Pension Reform
2001
Ageing will increase pension expenditure and contribution rates. There is also increasing awareness that the risks connected to mortality, fertility, and migration are considerable. In pension reforms one must decide how these risks are to be shared between workers and pensioners, and also take into account that in the transition phases different cohorts may gain or lose. We discuss the risk-sharing and intergenerational distribution aspects of three pension policy measures that either have already been adopted or are being proposed in Sweden and Finland. Each of these methods, linking benefits to life expectancy, indexing benefits to the total wage bill, and using fertility-dependent prefunding, has its own advantages and weaknesses. Using a numerical OLG model, and realisations from stochastic population simulations, we demonstrate that these methods greatly enhance the sustainability of a pension system in unfavourable demographic outcomes but have practically no effects if the demographics remain stable. Thus the allocation of risks can be improved without fundamentally changing the systems.
2011
This chapter examines the economic and demographic factors that threaten the viability of European pension systems over the next 50 years. In the short to medium term, the principal challenge is indeed a structural rebalancing of public finances, by applying austerity measures and reducing reliance on debt-financing, while at the same time promoting jobs growth and minimizing adverse impacts on vulnerable population groups. In the longer term, population aging remains the key challenge, although its magnitude, speed and timing vary across the European countries under review. Longevity gains and falling fertility levels, especially in Central and Eastern European countries where emigration is another contributing factor, imply that the cohorts of elderly are growing in number just as the cohorts of working population supporting them are starting to decline. The implications on the size and shape of public services and finances as well as on future growth and on living standards are considerable. This chapter argues that a review of fundamentals is required, for all concerned-individual countries as well as EU institutions-in moving forward, by examining whether, and how, recent policy reforms compromise the pension income adequacy of future retirees, and what policies can improve the prospects for both the financial and social sustainability of public pension systems.
The future of pension systems in Europe: A reappraisal
1999
In this paper we examine and ultimately challenge the traditional viewpoint on the future of current pension systems in Europe, according to which the effects of the ageing bomb will inevitably bring down our unfunded PA YG public pension systems. First, we claim that the projected dramatic increase in the pension burden in mostly due to labour market problems and the generosity of the system, rather than to demographic factors. Secondly, we conclude that a fully funded system cannot be achieved without a substantial reduction in current pension payments unless it is financed by issuing earnmarked public debt. Finally we claim that a socially efficient pension system should be a mixed one, partly funded and partly PA VG, on the basis of optimal portfolio allocation in a context of uncertain returns to both human and physical capital and on the role ofPAYG for financing the accumulation of human capital.
The Demographic Challenges of Pension Systems
2019
SNS, the Centre for Business and Policy Studies, is an independent think tank that brings together the worlds of academia, business and government for knowledge-sharing and dialogue on key societal issues. SNS provides a steady flow of independent research and analysis. The research takes a solution-focused approach to important policy issues. SNS mobilizes the best academic expertise from universities and research institutes in both Sweden and around the world. The quality, integrity and objectivity of SNS research are among our principal assets. Responsibility for the analysis and the conclusions in the research reports rest with the authors alone. Summary
Socio-Demographic Changes and the Pension Problem in France
1992
Projections of expenditures for old age pensions, survivor pensions, and disability pensions were made for the period 1985-2050 on the basis of future developments in the population structure by age, sex, and marital status. Six demographic scenarios were formulated: (i) a Benchmark scenario, with demographic rates kept constant at their 1980-84 level; (ii) a Fertility scenario, with a rise of the Total Fertility Rate (TFR) towards replacement level; (iii) a Mortality scenario, with reductions in mortality rates of 30 percent for females, and 45 percent for males; (iv) a Western scenario, which combines extreme demographic conditions of several West European countries: a TFR of 1.28, proportions never-marrying of one-third, one-third of marriages ending in divorce, and male and female life expectancies of 74 and 81 years, respectively; (v) a National scenario, with a TFR of 1.80 and male and female life expectancies increasing until 2050 up to 88.6 years for females and 80.6 years for males; and (vi) a National Migration scenario, differing from the National scenario only by assuming an immigration of 100,000 persons annually. The current pension system was combined with all six scenarios. Also, the impact of high female labor force participation, and a rise in the average age at retirement were investigated. The results indicate that changes in demographic conditions cannot prevent increases in and funding problems for pension expenditures in France. An increase in fertility has no effect on the pension system until 2030, when a larger generation will enter the labor force. Immigration reduces the deficit of the pension system only until 2015. Both immigration and longer active periods for males and females will cause enormous increases in pension expenditures in the future and are not long term solutions of the pension problem. Postponement of retirement age would help to balance the pension funds, but depends on the economic situation and on the labor market. Economic solutions such as indexing pensions on net instead of gross income should be considered.
The Cost of Growing Older: Challenges for European Pension Systems
Intereconomics, 2020
Pension reform has been on the agendas of many European policymakers for the better part of the last three decades. While some EU countries have made sweeping reforms several years ago, others are currently in the process. Undoubtedly, most will need to re-evaluate their systems due to the coronavirus crisis, at least temporarily. With Europe's ageing populations, declining fertility rates and increasing life expectancy, the associated rise in the old-age dependency ratio puts strain on unfunded, pay-as-you-go pension systems. This implicit pension debt has important macroeconomic implications. Often politically controversial and subject to intense policy debate, pension reforms may reduce entitlements for some demographic groups of the population. This has lead to widespread public dissatisfaction among the affected groups. It is necessary to look at a country's history and key features of its pension system in order to understand the related policy discussion. This Forum analyses the effects of different pension arrangements-with a focus on the challenges, history and demographics of Finland, France, Germany and Italy-on labour markets, on national growth, and on the distribution of burdens and benefi ts.
Demographic Pressure on the Public Pension System
Informatica (slovenia) - INFORMATICASI, 2008
The combination of low fertility, decreasing mortality and the baby-boom generation entering retirement will dramatically increase the share of elderly people in Slovenia in future decades. Without further changes in the pension system this will bring about strong pressure on the public pension system. In the analysis we use a cohort-based model to project the share of public expenditure on pensions in gross domestic product. This model enables us to analyse the long-term effects of the forthcoming demographic changes in connection with the current public pension system. The projected rise in pension expenditure will have to be mitigated at some point in the future and reducing pension benefits is one of the options.
General government pension obligations in Europe
This ageing process is driven essentially by two separate forces: (i) increasing longevity; and (ii) women's decreasing fertility. Having increased by eight years since 1960, life expectancy at birth is projected to rise in the euro area by a further six years for males and five years for females by 2050, with most gains resulting from lower mortality rates at older ages. However, the low fertility rates are generally regarded as the main factor in the ageing of the population. In all euro area countries, fertility rates are below the natural replacement ratio (approximately 2.1 children per woman) at which the size and age structure of the population remain stable. Section two of this paper describes the ageing of the population in Europe and its economic consequences. In section three, it further analyses the economic consequences in relation to the increase in future pension obligations incurred by general government. Such implicit pension obligations are accumulated predomi...
The Risk of Imbalances in the Financing of Social Protection in the Context of Demographic Ageing
Contemporary Economics, 2008
In the next decades, developed countries will experience dramatic changes in their demographic trends. The retirement of the wide baby-boom generations, the increase in life expectancy and the decline in fertility ratios are likely to modify the size and the age-structure of their populations. The expected population ageing in European countries will burden the pension systems, especially wherever the pay-as-you-go pillar is predominant. Recently, migration has received a widespread attention as a solution to expected population decline and ageing in these countries. The flow of (young) migrants to developed countries is perceived as a means to alleviate the financial burden of pension systems. The aim of this contribution is to clarify the issue of aging on labour and capital markets in a macroeconomic perspective. A special attention is given to the risk of imbalances in the financing of social protection in the context of demographic ageing.