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POPULATION AGEING AND
PENSION REFORM
Table 2
Public spending on old-age pensions, 2000 and 2050
in percent of GDP
Population ageing is a world-wide phenomenon.
Ageing patterns in terms of absolute levels as well as
rates of change differ substantially across country
groups, however.
France
Italy
Germany
Belgium
Sweden
Switzerland
Japan
Netherlands
Canada
USA
UK
While old-age dependency ratios are and will be the
highest in the (rich) G10 countries (23 percent and
42 percent respectively), the increase in the ratio
(1.8) in these countries until 2050 will be relatively
moderate (Table 1). In contrast, China, Latin America and India will exhibit much larger increases in
their old-age dependency ratios. It is only Africa that
has and will continue to have relatively low old-age
dependency ratios.
World
G10
China
Latin America
India
Africa
11
23
11
9
8
6
25
42
37
29
22
10
change in %
12.1
14.2
11.8
9.0
9.2
7.2
7.9
5.2
4.7
4.4
5.0
14.5
14.4
13.8
13.0
10.8
10.8
8.5
8.3
6.4
6.2
5.6
19.8
1.5
17.0
44.4
17.4
50.0
7.6
59.6
36.2
40.9
12.0
The list of countries was arranged according to the
probable level of public spending in 2050. France,
Italy and Germany rank highest and would have to
spend around 14 percent of GDP on their pensioners, while the figures for Canada, US and UK are
much less dramatic. However, the relative increase in
public spending on old-age pensions is more pronounced in the countries at the lower than in those
at the upper end of the list.
In recent years, governments have reacted to the
challenge posed by ageing and have initiated major
reforms of their pension systems (Table 3). Not
shown in Table 3 are the many systemic changes with
regard to statutory retirement age, access to early
retirement and methods of benefit indexation.
Table 1
Old-age dependency ratios and their change for
groups of countries 2005 and 2050
(age group 65 + years in percent of
age group 15–64 years)
2050
2050
Source: OECD (2005).
Within the group of G10 countries, there are also
large differences (not shown in Table 1). In 2005, the
old-age dependency ratios, with an average of 23
percent (Table 1), range from about 18 percent (US)
to 30 percent (Japan and Italy). This range is set to
widen considerably and will spread from 34 percent
(US) to about 70 percent (Italy and Japan), averaging 42 percent in 2050 (Table 1).
2005
2000
Simulation models show that the reforms conducted
up to now will not be sufficient. However, a further
increase of the already high contribution rates in
some countries will have adverse effects on the
labour market. Thus, a further reduction in the
replacement level is a major way out. In order to
avoid serious repercussions with respect to the standard of living of pensioners, private retirement saving must be increased. As Table 4 shows, assets of private pension funds have already increased remarkably – albeit only in some countries.
2050 in relation to 2005
2.3
1.8
3.4
3.2
2.8
1.7
Source: United Nations (2005).
Without any (further) reforms of the pension systems (mainly with regard to benefit levels, contribution rates and retirement age) and without changes
in gender participation rates, immigration and productivity trends, public spending on pensions in rich
countries will probably increase considerably. A
recent article in Financial Market Trends (OECD
2005) has collected related forecasts for a number of
OECD countries (Table 2).
While assets of private pension funds, as a percentage of GDP, are low and stagnating in some countries (Germany, Italy and Sweden), they are much
higher and have developed dynamically in other
countries (UK, Canada, the Netherlands, Switzerland, US).
R. O.
55
CESifo DICE Report 1/2006
Database
Table 3
Recent pension reforms
Belgium
Canada
France
Germany
Italy
Japan
Netherlands
Sweden
Switzerland
Date of last
major
reform
Changed level
of benefits
1997
1997
2003
2001
2004
2004
2004
1998
2003
reduction
no
reduction
reduction
defined benefits: abolished
reduction
reduction
defined benefits: abolished
reduction
Changed level
of contribution
rates
–
increase
increase
increase
no
increase
increase
no
no
Source: OECD (2005).
Table 4
Assets of private pension funds, 1990 and 2001
in percent of GDP
Germany
Italy
Sweden
Belgium
Japan
Canada
US
UK
Netherlands
Switzerland
1990
2001
Change in percentage points
3
3
2
2
12
29
42
50
72
56
3
4
4
6
19
48
63
66
105
114
0
1
2
4
7
19
21
16
33
58
Source: OECD (2005).
References
OECD (2005), “Ageing and Pension System Reform”, Financial
Market Trends, Supplement 1.
United Nations (2005), World Population Prospects.
CESifo DICE Report 1/2006
56
Present level of
replacement
rate
Present level of
contribution
rate
41
43
53
46
79
50
68
65
58
16.4
9.9
16.5
19.5
32.7
18.3
28.1
18.9
23.8