1. Demography, economic growth and
sustainability of social security system
Gianni Geroldi
Component Two Training Course “Financing the social security system in an ageing society:
the role of public finance and private supplementary funds”
Italy, July 1st -15th, 2018

2. Index 1. Some general issues on sustainability
A common indicator of pension expenditure sustainability
Re-elaborating the same indicator
Areas and relationships influencing the sustainability of pension systems
A situation that involves particular attention for the pension expenditure: the case of Italy
Rates of fertility in the period
LT projection of old age dependency ratio
GDP growth rate in real terms
EU 28: GDP yearly average rate of growth since 2005
EU 28: Pension calculating method
EU 28: Current and future retirement age
Aggregate replacement ratio (ARR)
Main consequences of pension reforms
What does the future hold ?
Rates of fertility
Net migration balance
Productivity rates of change
Rates of employment (age 15-64)
Five-year averages of real GDP growth rates
Public expenditure on pensions as a share of GDP

3. 1. Some general issues on sustainability

4. 1.1 A common indicator of pension expenditure sustainability
The ratio between pension expenditure (S) and GDP (Y) is the most commonly used indicator by the European Commission in the analysis on the financial sustainability of pension systems in EU Member States. It can be represented as follows:
p.N
S/Y =
π.E
S = pension expenditures
Y = GDP (gross domestic product)
P = average amount of pension benefit
N = n° of pensions
p = productivity per capita
E = employment (workers subject to statutory pension system)

5. 1.2 Re-elaborating the same indicator
P = total population
O = old age population (e.g., population aged 65 and over)
A = population in active age (e.g., population between 15 and 64 years of age)
a = A/P ratio of active age population over total population
b = N/O ratio of beneficiaries over old age population
d = O/P old age dependency rate
e = E/A rate of employment
 with some substitution: S/Y = (p.b.O)/(π.e.A ) = (p.b.d.P)/(π.e.a.P)
p.b.d
S/Y =
π.e.a

6. 1.3 Areas and relationships influencing the sustainability of pension systems

7. 2. A situation that involves particular attention for
the pension expenditure: the case of Italy

8. 2.1 Rates of fertility in the period 2005-2016

9. 2.2 LT projection of old age dependency ratio
(population 65 and over to population 15 to 64 years )

10. 2.3 GDP growth rate in real terms
(average values for each period)

11. 2.4 EU 28: GDP yearly average rate of growth since 2005

12. pension calculating method
EU 28: Pension calculating method
Country
pension calculating method
period of reference
income of reference
Belgium
ERS
full career
y.earnings with limit
Lithuania
best 25 ys.
y. earnings
Bulgaria
from 15 ys. to full career
ratio indiv/average
Luxembourg
NDC
worked years
refer earning (m & M)
Czech Repub.
Hungary
y.earn decreas. coeff.
Denmark
BFR
Malta
different periods
y.earnings
Germany
m.earnings with limit
Netherlands
Estonia
cumulated contrib.
Austria
from 20 to 40 ys. (2040)
Ireland
Poland
Greece
Portugal
Spain
from 228 weeks to 300
m.earnings (m & M)
Romania
France
Slovenia
best ys.
Croatia
Slovakia
Italy
Finland
Cyprus
Sweden
Latvia
United Kingd.
ERS. earning related systems NDC: notional define contribution BFR: basic flat rate
Except BFR, all countries have progressively lengthened the career period to be taken into account

13. 2.6 EU 28: Current and future retirement age
Country
Retirement age 
Retirement age
Current
Future BE
Belgium 65
67 (2030) LT
Lithuania
63,6 M 62 F
65 (2026) BG
Bulgaria
65 M 62 F
65 M 63 F (2020) LU
Luxembourg CZ
Czech Republic
63,2 M 62,4 F
67 (2041) HU
Hungary
62,6
65 (2022) DK
Denmark
67 M 65 F
67 (2022); 67+ (2030) MT
Malta 62
65 (2027) DE
Germany
65,5
67 (2031) NL
Netherlands
65,9
67+ (2022) EE
Estonia
65,3 ) AT
Austria
65 M 60 F
65 (2033) IE
Ireland 66
68 (2028) PL
Poland
65,7 M 60,7 F EL
Greece 67
67+ (2021) PT
Portugal
66,3 ES
Spain
67 (2027) RO
Romania
65 M 60,6 F
65M 63F (2030) FR
France
65,4
67 (2023) SI
Slovenia HR
Croatia
65 M 61,3 F
67 (2038) SK
Slovakia
62,2 N 59/62,2 F IT
Italy
66,7+ FI
Finland
63/68
65 (2027); 65+ (2030) CY
Cyprus
65+ SE
Sweden
61/67 LV
Latvia
62,9
65 (2025) UK
United Kingdom
65 M 63,7 F
67 (2028) 68 (2046)
all EU countries have already raised retirement age and planned further increases, except Luxemburg and Slovenia.
several countries introduced mechanisms to link the minimum pensionable age to indicators of population ageing

14. 2.7 Aggregate replacement ratio (ARR)
ARR: ratio of the median individual gross pensions of age relative to median
individual gross earnings of age, excluding other social benefits.

15. 2.8 Main consequences of pension reforms
increases in retirement age, more restrictive rules for calculating pension benefits and stronger correlation between contribution paid and benefits slow down pension expenditure (financial sustainability).
acting primarily on raising the age and extending the contributory career is aimed at avoiding an excessive reduction of pension benefits (social sustainability).
however, problematic aspects emerged on which there is a broad discussion in most European countries; in particular:
difficulties to prolong work beyond the age of 65, especially for the most heavy jobs, for those who have high collective responsibility and for those who are unemployed
risks on the amount of pensions due to: i) discontinuous work; ii) negative impact of low paid job periods with the calculation of pension extended to whole working career; iii) unpredictability of accumulation due to the funded or similar method

16. What does the future hold ?
The expected long-term evolution of the ratio between pension expenditure and GDP based on:
projections of ISTAT (Italian National Institute of Statistics) and EUROSTAT (European Institute of Statistics)
different hypotheses of Italian Ministry of Economy and Finance - General Accounting Office (MEF-RGS) and European Commission Economic Policy Committee - Working Group on Aging (EPC-WGA)

17. 3.1 Rates of fertility

18. 3.2 Net migration balance

19. 3.3 Productivity rates of change (GDP per employed at constant prices; five-year averages)

20. 3.4 Rates of employment (age 15-64) (Average employment rates for the period)

21. 3.5 Five-year averages of real GDP growth rates

22. 3.6 Public expenditure on pensions as a share of GDP