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Transcript of 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
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I. Trends and drivers of
public pension spending
3
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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
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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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)
ContributiontoSpending
Growth
Evolution of Public Pension Expenditures in Advanced Asia and Pacific, 19902010
(Percent of GDP)
7
Higher replacement rates and aging have
driven spending in advanced economies
Sources: OECD, ILO, UN, and IMF staff estimates.
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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)
ContributiontoSpending
Growth
Evolution of Public Pension Expenditures in Advanced Asia and Pacific, 19902010
(Percent of GDP)
8
Higher replacement rates and aging have
driven spending in advanced economies
Sources: OECD, ILO, UN, and IMF staff estimates.
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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)
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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.
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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
Higher replacement rates and aging have
driven spending in emerging economies
Evolution of Public Pension Expenditures in Emerging Economies, 19902010
(Percent of GDP)
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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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
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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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.
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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.
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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.
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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
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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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
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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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)
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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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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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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