Population Aging and the Rising Cost of Public Pensions

Rapid population aging is raising concerns about the sustainability of public pension systems in high-income countries. The first part of this study identifies the four factors that determine trends in public pension expenditures: population aging, pension benefit levels, the mean age at retirement, and the labor force participation rate. The second part presents projections to 2050 of the impact of demographic trends on public pension expenditures in the absence of changes in pension benefits, labor force participation, and age at retirement. These projections demonstrate that current trends are unsustainable, because without reforms population aging will produce an unprecedented and harmful accumulation of public debt. A number of projection variants assess the potential impact of policy options aimed at improving the sustainability of public pension systems. Although the conventional responses are considered, particular attention is given to the demographic options of encouraging higher fertility and permitting more immigration. This analysis is illustrated with data from the seven largest OECD countries. Copyright 2004 The Population Council, Inc..