24 October 2001

Economic Policy Committee: Budgetary Challenges posed by Ageing Populations

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Report by the Economic Policy Committee on budgetary challenges posed by ageing populations: the impact on public spending on pensions, health and long-term care for the elderly and possible indicators of the long-term sustainability of public finances

The report, established at the request of the Ecofin Council, reviews national projections of the impact of ageing on public expenditure on pensions, health care and long-term care for the elderly up to the year 2050, and puts forward possible indicators to examine the overall long-term sustainability of public finances on the basis of these projections. It identifies some key challenges stemming from the large changes in the size and composition of the population in all the Member States in the coming decades.

The report brings together the work undertaken in 2000 and 2001 by a working group on ageing populations attached to the Economic Policy Committee. This group is made up of experts from national administrations, the European Commission, the European Central Bank and the OECD.

The report presents projections for public spending on pensions, health and long-term care. It also examines how these projections could be used to help assess the overall sustainability of public finances. The projections were made on the basis of a demographic forecast provided by Eurostat and agreed assumptions on key economic parameters (participation rates, unemployment, productivity growth and real interest rates). For pensions, national authorities used their own models or sub-contracted this work to national research institutes, whereas for health and long-term care a common methodology was used. The aim of the projection exercise is to achieve broad consistency across Member States while recognising that full comparability is not possible. As with all long-term forecasts, caution must be exercised when interpreting results.

The report is divided into four sections as follows:

demographic projections: section 2 summarises the demographic projections up to 2050 which have been used by the Member States in making the projection of the impact of ageing on pensions, health and long-term care expenditure. They were prepared by Eurostat specifically for this report.

public expenditure on pensions: section 3 presents projections for the impact of ageing populations on public pension expenditures. It builds upon an interim report presented to the Ecofin Council in November 2000, in a number of respects. Projections are now available for all Member States, and in some cases they have been updated to incorporate the impact of recent reforms. In addition, the results have been decomposed with a view to identifying the driving forces behind the changes in projected expenditure. Finally, each Member State has prepared a so-called ’country fiche’ in which they describe their pension systems, the projection model(s) used and the main factors driving the results (see below).

public expenditure on health and long-term care: section 4 presents a set of projections which measure the direct impact of ageing populations on public expenditures on health and long-term care for fourteen Member States.

the sustainability of public finances: section 5 considers how the projections for age-related public expenditures could be used to examine the overall sustainability of public finances. A number of indicators are developed along with an exposition of factors which should be taken into account when interpreting results.

See full report
See executive summary

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