Ageing and pensions in the Euro Area Survey and projection results

Population ageing will impose a significant burden on European fiscal balances, in particular through pay-as-you-go pension systems. This study presents an independent estimate of this burden for the euro area, and quantifies the impact of two reform scenarios. Based on widely used, but optimistic assumptions, the present value of future pension deficits through 2050 is estimated at 51percent of GDP, adding to the current average explicit debt stock of around 67 percent of GDP. In this calculation, the deficits currently incurred by many pension systems as revenues fall short of expenditures, are not included. Viable parametric reforms represent no durable solution to alleviate the burden sufficiently, as they can balance pension systems at best temporarily. A comprehensive reform, including reforms of current systems, and a move towards partial funding, is found to ensure permanent financial viability of the public pension system.