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Abstract
This paper discusses a study analyzing aging populations and public pension schemes. An aging society is characterized by a growing proportion of the retired to the active working population. The study examines the pension-related aging problem primarily from a fiscal perspective. It analyzes how prospective demographic developments that affect the proportion of the pensionable elderly affect pension outlays. It confirms that very serious fiscal stresses are in prospect for most industrial economies. Addressing such problems satisfactorily will require major actions early, given the long lead times involved in reforming a pension fund's financial position.
Abstract
An aging society is characterized by a growing proportion of the retired to the active working population. Societies age either when fertility rates decline so that fewer children are born, or when longevity increases, or both. Aging affects virtually all societies today, but more so the industrial countries, which have generally experienced it over a longer period and for which further pronounced aging is projected over the next four decades, at the end of which a peak in the proportion of the elderly is likely to be attained. Concerns about the challenges posed by aging populations have moved to the forefront of the public policy debate in many countries. This paper attempts to respond to some of these concerns, focusing in particular on the fiscal sustainability of public pension schemes in industrial countries.
Abstract
Projections of demographic trends reflect assumptions about future variations in fertility, life expectancy, and immigration flows.2 Present rates of fertility (the number of children born to an average woman during her lifetime) differ considerably across the selected industrial countries, ranging from historically low values of 1.3 (Germany, Italy) to highs of 2.1 (United States, Sweden). Over the next four decades, the demographic scenarios assume, perhaps optimistically, that the fertility rate in all countries will converge to the level needed to maintain a stable population, that is, about 2.1. However, trends in fertility rates are notoriously difficult to predict.3 Although deviations from the fertility assumptions underlying the projections will not affect the projected number of elderly persons, they could nevertheless have sizable effects on the projected number of persons of young and working age. Life expectancy at birth of both sexes is projected to increase by some five years until 2050, with most of the added longevity occurring before 2020. In light of present political realities, net immigration flows in most of the industrial countries are assumed to taper off quickly from observed levels during the early 1990s, falling to zero in most countries after 2005. Only Canada and the United States are assumed to have positive (but declining) net immigration beyond 2005.
Abstract
This section outlines the analytical and empirical approach adopted for assessing the long-run fiscal impact of a public pension system.15 The section also presents projections of the fiscal consequences of preserving current public pension arrangements.
Abstract
The previous section pointed to the need for major pension adjustments for most major industrial countries so as to ensure that their public pension systems are sustainable and to prevent a buildup in pension-related debt. It was further noted in the previous section that improvements in the macroeconomic environment would be helpful. While there may be some scope for fiscal measures not related to pensions, for most countries the emphasis will have to be on reforming the pension arrangements themselves. This section reviews several such reforms, of both a parametric and a systemic nature, and attempts to quantify the fiscal impact of reforms on the financial position of the public pension system. It is more difficult to quantify the effect of reform options on the overall fiscal position. Broadly, most parametric reforms are likely to improve the overall fiscal position of government if there is not much offset from the non-pension part of the budget. By contrast, the overall fiscal balance effect of partial advance funding is more controversial; it has been argued that the accumulation of pension fund reserves may loosen the overall budget constraint, in particular if pension fund surpluses count toward overall deficit reduction. Regarding the overall fiscal impact of systemic reforms, this will partly depend on whether transition costs are financed by debt accumulation or taxes.
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