1 ageing populations: a real challenge for europe. frank lierman, chief economist dexia bank sri...
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1
Ageing populations: a real challenge for Europe.
Frank Lierman, Chief Economist Dexia Bank
SRI Roadshow May 2011
2
Ageing populations: a real challenge for Europe
Ageing: a real world problem!
Total cost of ageing
Pensions in danger?
Health care costs are increasing faster
Risk of poverty
Which solutions?
Annexes
3
Overview of the 2009 projection of age-related expenditure
Total age-related
spending
GDP production
function
Population 2008-2060
EUROPOP2008Convergence scenario
Labour ProductivityProduction function
Labour forceCohort method
UnemploymentConvergence to ECFIN estimate
of NAIRU
Real interestrate (constant)
PensionsNational models
Education
Long-term care
Health care
Unemploymentbenefits
Source: Commission services, EPC
Ageing: a real world problem!
4
Dependency ratio of older people (65+ / 15-64).
0
10
20
30
40
50
60
Africa Asia Europe Latin
America
North
America
Oceania World
2007 2050
Ageing: a real world problem!
Source: United Nations, World Population Prospects, 2007.
5
Turnaround in the air?Ageing: a real world problem!
Number of live births in EU-27, 1980-2009 Number of deaths in EU-27, 1980-2009
Source: European Commission, Demography Report 2010, Eurostat
6
Total fertility rate and mean age of women at childbirth, 2009.Ageing: a real world problem!
Source: European Commission, Demography Report 2010, Eurostat
7
Population pyramid EU-27
20000000 15000000 10000000 5000000 0 5000000 10000000 15000000 20000000
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89
90+
Men Women
Source: European Commission, The 2009 Ageing Report
Ageing: a real world problem!
20000000 15000000 10000000 5000000 0 5000000 10000000 15000000 20000000
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89
90+
Men Women
2008 2060
8
Dependency ratio of elder people (65+ / 15-64)Ageing: a real world problem!
Source: European Commission, The 2009 Ageing Report
20
25
30
35
40
45
50
55
60
65
2008 2020 2030 2040 2050 2060
EU Belgium Germany France Netherlands
9
Relative share of the age in 2008 (in % of total population)Ageing: a real world problem!
Source Eurostat:
16
67
17
4
17
66
17
5
14
66
20
5
18
65
17
5
18
67
15
4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EU BE DE FR NL
14
56
30
12
16
58
27
10
13
55
32
13
17
57
26
11
15
58
27
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EU BE DE FR NL
0-14 15-64 65+ 80+
2008 2060
10
Ageing: a real world problem!
Source: European Commission, The 2009 Ageing Report
Employment rates and Lisbon targets in the EU-27 (in %)
11
Employment projections, composition of employment by age groups (Euro area)
Young Older Prime Age
Ageing: a real world problem!
Source: European Commission, The 2009 Ageing Report
2007 2060
12
Population change by component, EU-27, 1961 – 2009Ageing: a real world problem!
Source: European Commission, Demography Report 2010, Eurostat
13
Age structure could changeAgeing: a real world problem!
Source: European Commission, Demography Report 2010
Age structure of the population on 1 January 2009 and of immigrants in 2008, EU-27
Age structure of immigrants by basic citizenship groups, EU-27, 2008
14
Change in overall population: natural change and net migration, EU-27 (in thousands)Ageing: a real world problem!
Source: European Commission, Demography Report 2010
BEBE DEDE FRFR NLNL EU27EU27
Population 1.1.2009 10 753,1 82 002,4 64 367,0 16 485,8 499 703,3
Live births 127,3 665,1 825,6 184,9 5 371,9
Deaths 104,5 854,5 548,7 134,2 4 848,8
Natural change 22,8 - 189,4 276,9 50,7 523,1
Net migration 64,0 - 10,7 70,2 38,5 877,1
Total change 86,8 - 200,1 374,1 89,2 1 400,1
Population 1.1.2010 10 839,9 81 802,3 64 714,1 16 575,0 501 103,4
P
P
P
P
P
P
P
P
P: provisional data
15
Change in overall population: natural change and net migration, EU-27 (in thousands)Ageing: a real world problem!
Source: European Commission, The 2009 Ageing Report
16
Population of main geographic areas and selected countries as percentage of the population, 1950, 2000, 2050
Ageing: a real world problem!
Source: European Commission, The 2009 Ageing Report
17
Effective economic old-age dependency ratio (65+ / 15-64).Ageing: a real world problem!
Source: European Commission, The 2009 Ageing Report
18
Ageing: a real world problem!
Total cost of ageing
Pensions in danger?
Health care costs are increasing faster
Risk of poverty
Which solutions?
Annexes
Ageing populations: a real challenge for Europe.
19
Cost of ageing in EU 27 (% point change of GDP)Total cost of ageing
Source: European Commission, The 2009 Ageing Report
20
Member States with low ageing costs (% of GDP)Total cost of ageing
Source: Commission services EPC
Unemployment benefits
Pensions Health care Education
Long-term care
EA
FR
EU
27
DE
NL
BE
21
Ageing: a real world problem!
Total cost of ageing
Pensions in danger?
Health care costs are increasing faster
Risk of poverty
Which solutions?
Annexes
Ageing populations: a real challenge for Europe
22
Pension schemes in some EU Member States
BEBE DEDE FRFR NLNL
Public pensionsPublic pensions
Minimum pension/social allowanceMinimum pension/social allowance
Old-age pensionsOld-age pensions
Early retirement pensionsEarly retirement pensions
Disability pensionsDisability pensions
Survivors pensionsSurvivors pensions
MT – SA
ER
ER
ER (wage earner); FR (self employed)
ER
MT – SA*
ER
ER
ER
ER
MT
ER
ER
ER – HC
ER
SA*
FR
-
ER
FR
Occupational pension scheme Occupational pension scheme
V* V* V M
Private pension schemePrivate pension scheme
Mandatory private schemeMandatory private scheme
Voluntary pension schemeVoluntary pension scheme
X
V*
X
V*
-
V*
X
V*
Source: European Commission, The 2009 Ageing Report
Pensions in danger?
MT: means tested V: voluntary participation ER: earnings related
SA: social allowances X: does not exist FR: flat rate
M: mandatory participation *: not covered by projection HC: partly covered by healthcare
23
Legal indexation rules in some EU Member States
BEBE DEDE FRFR NLNL
Public pensionsPublic pensions
Minimum pension/social allowanceMinimum pension/social allowance
Old-age pensionsOld-age pensions
Early retirement pensionsEarly retirement pensions
Disability pensionsDisability pensions
Survivors pensionsSurvivors pensions
CPI + LSA
CPI + LSA
CPI + LSA
CPI + LSA
CPI + LSA
In line with pensions & re-exam (5)
NI + sust
NI + sust
NI + sust
NI + sust
CPI
CPI
CPI
CPI
CPI
NI
NI
NI
NI
NI
Occupational pension scheme Occupational pension scheme
- - -70% NI & 30%
CPI
Private pension schemePrivate pension scheme
Mandatory private schemeMandatory private scheme
Voluntary pension schemeVoluntary pension scheme
-
-
-
-
-
-
-
-
Source: European Commission, The 2009 Ageing Report
CPI: consumer price inflation NI: nominal income growth
LSA: living standard adjustment sust: additional adjustment
Pensions in danger?
24
Statutory retirement age and average exit age
BEBE DEDE FRFR NLNL EU27EU27 EAEA
Exit age Male 2001
2007
57,8
61,6
60,9
62,6
58,2
59,5
61,1
64,2
60,4
61,9
60,2
61,6
Exit age Female 2001
2007
55,9
61,9
60,4
61,5
58,0
59,4
60,8
63,6
59,4
60,5
59,6
60,9
Total 2001Total 2001
20072007
56,856,8
61,661,6
60,660,6
62,062,0
58,158,1
59,459,4
60,960,9
63,963,9
59,959,9
61,261,2
59,959,9
61,361,3
Statutory retirement age 2008
Male
Female
65
64
65
65
60
60
65
65
-
-
-
-
Source: European Commission, The 2009 Ageing Report
Pensions in danger?
25
Pensions in danger?Decomposition of the public pension spending to GDP ratio over 2007 – 2060 (% of GDP)
BEBE DEDE FRFR NLNL EU27EU27 EAEA
2007 level 10,0 10,4 13,0 6,6 10,1 11,1
Dependency ratio contribution 7,4 7,9 8,4 6,6 8,7 8,8
Coverage ratio contribution - 0,9 -1,9 - 2,2 - 1,5 - 2,6 - 1,9
Employment effect contribution - 0,5 - 0,8 - 0,5 - 0,2 - 0,7 - 0,7
Benefit ratio contribution - 1,0 - 2,2 - 4,0 - 0,6 - 2,5 - 2,9
Interaction effect - 0,3 - 0,8 - 0,7 - 0,4 - 0,6 - 0,7
2060 level 14,7 12,8 14,0 10,5 12,5 13,8
Source: European Commission, The 2009 Ageing Report
26
Pension expenditure and benefit ratioPensions in danger?
Source: European Commission, The 2009 Ageing Report
27
Change in the public pension/GDP over 2007-60 (in percentage points)
Source: Commission services, EPC
Pensions in danger?
28
Privately managed funded pension coverage and contributions in the EU, 2008
Source: OECD
Pensions in danger?
29
Ageing: a real world problem!
Total cost of ageing
Pensions in danger?
Health care costs are increasing faster.
Risk of poverty
Which solutions?
Annexes
Ageing populations: a real challenge for Europe
30
Ageing report – Economic and budgetary projections for the EU-27 Member States (2008-2060)
Health care costs are increasing faster
Source: Commission services, EPC
31
Total expenditure on healthcare and life expectancy in the EU member states
Source: Eurostat and OECD
Health care costs are increasing faster
32
Public spending on health care (% of GDP) (*)
BEBE DEDE FRFR NLNL EU27EU27 EAEA
Level 2007 7,6 7,4 8,1 4,8 6,7 6,7
Change 2007 – 2060
% of GDP
%
1,2
16
1,8
24
1,2
15
1,0
20
1,5
22
1,4
21
Level 2060 8,8 9,2 9,4 5,8 8,2 8,1
Difference to pure demographic scenario
- 0,2 - 0,2 - 0,2 - 0,1 - 0,2 - 0,2
Health care costs are increasing faster
Source: European Commission, The 2009 Ageing Report
(*) AWG reference scenario
33
Factors pushing up healtcare costsHealth care costs are increasing faster
Demand side Demografic structure of the population Developments in health status Individual and national income
Supply side Technology Legal and institutional setting Human and physical capital
34
Public expenditure on long-term care (% of GPD) (*)
BEBE DEDE FRFR NLNL EU27EU27 EAEA
Level 2007 1,5 0,9 1,4 3,4 1,2 1,3
Change 2007 – 2060
% of GDP
%
1,4
93
1,4
153
0,8
58
4,7
140
1,1
94
1,4
105
Level 2060 2,9 2,4 2,2 8,1 2,4 2,7
Difference to pure demographic scenario
- 0,2 - 0,1 - 0,1 - 0,5 - 0,1 - 0,1
Health care costs are increasing faster
Source: European Commission, The 2009 Ageing Report
(*) AWG reference scenario
35
Ageing: a real world problem!
Total cost of ageing
Pensions in danger?
Health care costs are increasing faster
Risk of poverty
Which solutions?
Annexes
Ageing populations: a real challenge for Europe.
36
Expenditure on social protection benefits (gross, by function, in % of GDP – 2007)
Source: Eurostat – ESSPROS 2007
Risk of poverty
EU-27
0
5
15
20
25
30
35
10
BE DE FR NL
Housing and social exclusion n.e.c.
Unemployment
Family / Children
Sickness / Health care
Old age and survivors
Disability
37
At-risk-of-poverty rate and illustrative value of the at-risk-of-poverty thresholds (single adult households); 2008.
Source: EU-SILC (2008), dk*: values including imputed rent²
Risk of poverty
38
At-risk-of-poverty rate by age group, 2008
Source: EU-SILC (2008), dk*: values including imputed rent²
Risk of poverty
EU-270
5
15
20
25
10
BE DE FR NL
Children (aged 0 -17).
Working population (aged 18 – 64)
Elderly (aged 65+)
39
Ageing: a real world problem!
Total cost of ageing
Pensions in danger?
Health care costs are increasing faster
Risk of poverty
Which solutions?
Annexes
Ageing populations: a real challenge for Europe.
40
Structural reformsWhich solutions?
From a “pay as you go” regime towards a “capitalisation” regime
From a “defined benefit” regime towards a “defined contribution” regime
The goal of each reform is to set up an equilibrium between
“adequacy” and “sustainablilty”
41
Parametrical reformsWhich solutions?
Source: BNB, Les réforms des régimes de pension dans les pays de l’UE 15
Fiscal sustainability
Social sustainability
Receipts ↑
Actual retirement age ↑
Benefits↓
Tax-like advantages ↓
Minimum guarantees↑
2nd and 3rd pillar pensions ↑ Indexations and adaptations to well being ↓
Legal retirement age ↑
Early retirement options ↓
Penalties for early retirementand incentives to stay
Benchmark career ↑
Least favourable period
(Portion of) salary considered ↓
Salary raises ↓
Reference salary↓
Objectives that are contradictoryin the short term
42
Reform of public sector employeesWhich solutions?
Source: BNB, Les réforms des régimes de pension dans les pays de l’UE 15
BEBE DEDE FRFR NLNL
Longer life spans or raising of the minimum retirement age
X X X
Obstacles to early retirement and promotion of later retirement
X X X X
Lengthening contribution times X X X
Reduction in retirement benefits X X X
43
Swedish first-pillar reformWhich solutions?
Source: Sunden, The Swedish experience wtih pension reform, 2006
Before the reformBefore the reform After the reformAfter the reform
Basic systems
(other than those based on salaries)
• universal basic allowance
• when there is no sufficient working income, right to an additional pension and a housing allowance
Minimum guaranteed (residual) pension and housing allowance funded by general fiscal resources
Salary-based systems Supplemental allocation based on defined benefit covering salaries up to a certain ceiling:
• 15 best salaries
• price indexation (also for the ceiling)
• 30 years of contributions
• 18.5% contribution rate
• normal retirement age: 65 years, but early retirement possible at 60
Allowance based on defined contributions covering salaries up to a certain ceiling:
• benefits based on paid contributions
• yield and indexation linked to salaries (also for the ceiling)
• 18.5% contribution rate:
- 16% for notional accounts
- 2.5% capitalisation
• flexible retirement age beginning with 61 years
Survival pensions Funded by Social Security contributions
Separate system funded by general fiscal resources
44
Ageing: a real world problem!
Total cost of ageing
Pensions in danger?
Health care costs are increasing faster
Risk of poverty
Which solutions?
Annexes
Ageing populations: a real challenge for Europe
45
AnnexesUnited Nations ageing index (= number 60+ per 100 0-14 years)
0
50
100
150
200
250
Africa Asia Europe Latin
America
North
America
Oceania World
2007 2050
Source: United Nations, World Population Prospects, 2007
46
Number 60+ in % of population
0
5
10
15
20
25
30
35
40
Africa Asia Europe LatinAmerica
NorthAmerica
Oceania World
2007 2050
Annexes
Source: United Nations, World Population Prospects, 2007
47
Averge age (in years)
0
5
10
15
20
25
30
35
40
45
50
Africa Asia Europe LatinAmerica
NorthAmerica
Oceania World
2007 2050
Annexes
Source: United Nations, World Population Prospects, 2007
48
Lack of children (number of births per woman)
0
0,5
1
1,5
2
2,5
3
3,5
1960 1980 2000 2008 2020 2040 2060
EU Belgium Germany France Netherlands
Annexes
Source: European Commission, The 2009 Ageing Report
49
Age-related government expenditure, 2007-2035 (percentage of GDP)
BEBE DEDE FRFR NLNL EU27EU27 EAEA
Pension 2007
2007-2035
10,0
4,4
10,4
1,4
13,0
1,4
6,6
1,9
10,2
1,7
11,1
2,1
Healthcare 2007
2007-2035
7,6
1,0
7,4
1,4
8,1
1,0
4,8
0,9
6,7
1,0
6,7
1,0
LT care 2007
2007-2035
1,5
0,7
0,9
0,7
1,4
0,5
3,4
2,8
1,2
0,6
1,2
0,6
Unemployment benefits
2007
2007-2035
1,9
- 0,4
0,9
- 0,3
1,2
- 0,3
1,1
- 0,4
0,8
- 0,2
1,0
- 0,2
Education 2007
2007-2035
5,5
- 0,1
3,9
- 0,5
4,7
0,0
4,6
- 0,2
4,3
- 0,3
4,2
- 0,3
Total 2007Total 2007
2007-20352007-2035
26,526,5
5,65,6
23,623,6
3,63,6
28,428,4
2,72,7
20,520,5
6,96,9
23,123,1
2,72,7
24,324,3
3,23,2
Annexes
Source: European Commission, The 2009 Ageing Report
50
Average gross public pension expenditure in 2000 and 2007 (% of GDP)
Source: Commission services, EPC
Annexes
16
14
0
2
4
4
8
10
12
200
0
200
7
200
0
200
7
200
0
200
7
200
0
200
7
BE DE NL FR
Old age pension
Other pensions
51
Total expenditure on health per capita vs GDP per capita, 2007
Source: Eurostat and OECD Health data
Annexes
52
At-risk-of-poverty rate by age group, 2008
Source: EU-SILC (2008), dk*: values including imputed rent²
Annexes
53
Total, public and private expenditure on health as % of GDP, 2007
Source: Eurostat
Annexes
(RHS)