EUROPEAN PAPERS ON THE NEW WELFARE

Financial sustainability of social protection systems (with particular reference to retirement pensions)

4. Ageing pension expenditure and necessary system reform
It is estimated that the mere demographic factor could cause an increase in retirement expenditure, which, on average terms, would amount to the equivalent of 5 or more percentage points of GDP between now and 2050. The OECD calculates that longer working lives and an increased share of women in employment could reduce this expenditure by 1 point of GDP. Moreover, pension system reform (replacement rates, length of contribution periods, etc.) would lead to a further reduction of 1.25 GDP points (on average for OECD countries, as a whole)3. A deficit on this scale would increase borrowing, the burden of which would have to be upheld by future generations. It is plausible that this would entail a decline of intergenerational wealth — something that politicians are reluctant to deal with.

Figure 3: Social protection expenditure, ESA, as % of GDP, 2002, UE-25
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Source: Eurostat and author’s personal compilation.

Figure 4: Life expectancy at the effective retirement age in some EU Member States. Men, 2002
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Source: Eurostat and author’s personal compilation.

Figure 5: Life expectancy at the effective retirement age in some EU Member States. Women, 2002
barea-figura-5.gif
Source: Eurostat and author’s personal compilation.

3 Casey, B. et al. (2003): “Policies for an ageing Society: recent measures and areas for further reform”, OECD Economics Department Working Paper, No. 369, Paris, p. 8.


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