Pension Spending

7/27/2019 Pension Spending

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Global Trends in Public Pension

Spending and Outlook

Benedict Clements

Fiscal Affairs Department

International Monetary FundJanuary 2013

This presentation represents the views of the author and should not be attributed to the IMF, its Executive Board, or its management.


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Plan of Presentation

2

I. Trends and drivers of public pension spending inadvanced and emerging economies

II. Fiscal context and projected spending increases

III. Risks to projections

IV. Conclusions


3/23

I. Trends and drivers of

public pension spending

3


4/23

4

After rapid increases over 1970-1990, reforms have

slowed the growth of public pension spending

advanced economies

0

2

4

6

8

10

12

14

16

18

1970 1980 1990 2000 2010

P

ensionSpending,percentofGDP

Lowest Average Highest

Sources: OECD, EC, ILO, UN, and IMF staff estimates.

Note: The average includes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,

Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,

Switzerland, the United Kingdom, and the United States. The lowest/highest refers to the single country with

the lowest/highest spending.


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0.9

0.3

2.0

-0.1

1.5

-0.6

1.1

-0.5

-3

-2

-1

0

1

2

3

Aging

Eligibility

Replacement

rate

Laborforce

participation

Aging

Eligibility

Replacement

rate

Laborforce

participation

1970-1990(Advanced)

1990-2010(Advanced)

ContributiontoSpending

Growth

Evolution of Public Pension Expenditures in Advanced Economies, 19702010

(Percent of GDP)

5

Higher replacement rates and aging have

driven spending in advanced economies



6/23

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1970 1980 1990 2000 2010

PensionSpending,percentofGD

P

Australia Japan Korea New Zealand

6

Trends vary across countries

Sources: OECD, ILO, UN, and IMF staff estimates.


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0.7

-0.4

0.5

-0.2

4.8

-2.3

2.7

-0.4

-3

-1

1

3

5

Aging

Eligibility

Replacement

rate

Laborforce

participation

Aging

Eligibility

Replacement

rate

Laborforce

participation

1990-2010(Australia)

1990-2010(Japan)


Growth

Evolution of Public Pension Expenditures in Advanced Asia and Pacific, 19902010

(Percent of GDP)

7





8/23

0.9

-0.1

0.1

-0.1

1.1

-3.8

0.9

-0.8

-4

-2

0

2

Aging

Eligibility

Replacement

rate

Laborforce

participation

Aging

Eligibility

Replacement

rate

Laborforce

participation

1990-2010(Korea)

1990-2010(New Zealand)


Growth

Evolution of Public Pension Expenditures in Advanced Asia and Pacific, 19902010

(Percent of GDP)

8





9/23

0

2

4

6

8

10

12

1990 2000 2010

PensionSpending,percentofGD

P

Other Emerging

Emerging Europe

Emerging Asia

9

Large increases in pension spending in emerging

economies, but from low level in Asia

Evolution of Public Pension Expenditures in Emerging Economies, 19902010

(Percent of GDP)


Note: Emerging Europe includes Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia,

Turkey, and Ukraine. Emerging Asia includes China, India, Indonesia, Malaysia, Pakistan, Philippines, andThailand. Other emerging includes Argentina, Brazil, Chile, Colombia, Egypt, Jordan, Mexico, Saudi Arabia,

and South Africa.


10/23

1.8

-1.5

2.1

0.7

1.0

-0.4

0.7

-0.3

0.20.0

0.9

0.0

-3

-2

-1

0

1

2

3

Aging

Eligibility

Replacement

rate

Laborforce

participation

Aging

Eligibility

Replacement

rate

Laborforce

participation

Aging

Eligibility

Replacement

rate

Laborforce

participation

1990-2010(Emerging Europe)

1990-2010(Other Emerging)

1990-2010(Emerging Asia)

ContributiontoSpendingGrowth

10


driven spending in emerging economies

Evolution of Public Pension Expenditures in Emerging Economies, 19902010

(Percent of GDP)



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ISLIRL

KOR

NZLSVKUSA

AUS

AUT

BEL

CAN

CZEDNK

FIN

FRAGRC

LUX NLD NOR

PRT

SVNESPSWE

CHE

GBR

GER

ITA

JPN

0

4

8

12

16

20

0 10 20 30 40 50 60 70

Spending(percentofGDP)

Replacement Rate (percent of average wage)

Advanced

INDIDN

MYS

PAKPHLSAUZAF

TUR

EGYJOR

ARG

BRA

CHN

CHL

MEX

POL

RUS

THA

BGR

ESTHUN

LVA

LTUROM

UKR

0

4

8

12

16

20

0 10 20 30 40 50 60 70

Spending(percentofGDP)

Replacement Rate (percent of average wage)

Emerging

0246810121416

-80 120Old-age dependency ratio=0-10 Old-age dependency ratio=10-20

Old-age dependency ratio=20-30 Old-age dependency ratio=30-40

Pension Spending, Replacement Rates, and Aging, 2010

11

Variation in spending reflects differences in

aging, system generosity, and coverage rates



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II. Fiscal context and projected spending

increases

12


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0

20

40

60

80

100

120

140

1880 1886 1892 1898 1904 1910 1916 1922 1928 1934 1940 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012

Advanced

Emerging

Debt ratios remain at historic levels in

advanced economies

13

Public Debt, percent of GDP

World War IIGreat

Recession

Source: IMF.


14/23

Substantial adjustment is needed to bring debt

ratios to appropriate levels in advanced economies

14

Illustrative Adjustment Needs, percent of GDP

9.5

-4

0

4

8

12

16

20

Source: IMF.


15/23

0.2

-6

-4

-2

0

2

4

6

8

10

Emerging economies are in a stronger overall

fiscal position, but some countries are vulnerable

15

Illustrative Adjustment Needs, percent of GDP

Source: IMF.


16/23

16

Implications for fiscal policy and pensions

Fiscal adjustment needs are high in many advancedeconomies

Measure of needed fiscal adjustment does not take into

account projected increases in pension and public

health spending

Containing increases in pension spending may be

needed to support fiscal adjustment

Emerging economies have more fiscal space


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-2

0

2

4

6

Luxembourg

Korea

Slovenia

Belgium

Netherlan

ds

New

Zeala

nd

Norw

ay

Switzerla

nd

Finla

nd

Cana

da

UnitedStates

Germa

ny

Austria

Austra

lia

Irela

nd

Portugal

Slovakia

Spain

UnitedKingdom

Icela

nd

Gree

ce

Fran

ce

CzechRepub

lic

Jap

an

Denmark

Swed

en

Italy

Average=1.2

-4

-20

2

4

6

8

Turkey

Egypt

China

Jordan

Russia

SaudiArabia

Malaysia

Ukraine

Romania

Argentina

Brazil

Mexico

Latvia

Philippines

SouthAfrica

Lithuania

Thailand

Indonesia

Pakistan

India

Bulgaria

Chile

Poland

Estonia

Hungary

Average=1.0

Increase in Pension Spending, 20102030

(Percent of GDP)

17

Pension spending pressures will intensify in

many countries between 2010 and 2030



18/23

18

Enacted reforms are expected to help contain impact of

population aging on spending in advanced economies

Evolution of Public Pension Expenditures, 20102030

(Percent of GDP)

4.5

-1.3 -1.4

-0.3

3.2

-0.8-0.1

-0.4

-6

-4

-2

0

2

4

6

Aging

Eligib

ility

Replacem

ent

rate

Laborfo

rce

participa

tion

Aging

Eligib

ility

Replacem

ent

rate

Laborfo

rce

participa

tion

2010-2030(Other Advanced)

2010-2030(Advanced Asia and Pacific)

ContributiontoSpendingGrowth



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4.1

-1.5 -1.8

-0.3

2.7

-0.4

-1.1

-0.3

1.4

0.0

0.0 0.0

-6

-4

-2

0

2

4

6

Aging

Eligibility

Replacement

rate

Laborforce

participation

Aging

Eligibility

Replacement

rate

Laborforce

participation

Aging

Eligibility

Replacement

rate

Laborforce

participation

2010-2030(Emerging Europe)

2010-2030(Other Emerging)

2010-2030(Emerging Asia)

19

Enacted reforms are expected to help contain impact

of population aging on spending in most emerging

regions except for Asia

Evolution of Public Pension Expenditures, 20102030

(Percent of GDP)



20/23

20

Demographic and macroeconomic risks

High longevity

(>1 percentage point of GDP in 2030

spending)

Czech Republic, Russia, Slovakia, and

Ukraine

Low productivity

(>0.5 percentage points of GDP in

2030 spending)

Italy, Portugal, and Spain

Labor force participation(>0.5 percentage points of GDP in

2030 spending)

Czech Republic, Japan, Korea, the

United Kingdom, and the United States

III. Considerable uncertainty and upside risks

to projections


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22

IV. Conclusions

Public pension spending has increased in advancedand emerging economies since 1970s

Aging will put pressure on pension spending in coming

decades, with many emerging economies starting from

lower levels

Upside risks to projections and uncertainties

Containing increases in pension spending in advanced

economies may be needed to support fiscal adjustment Some but not all emerging economies have fiscal space

that could be used to expand pension coverage


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Documents

Pension Spending