Volume 2, ISSUE2/2011 - Review of Applied Socio-Economic ...

CountryPag׀ 58 ISSN: 2247-6172ISSN-L: 2247-6172Review of Applied Socio- Economic Research(Issue 2/ 2011)URL: http://www.reaser.eue-mail: editors@reaser.euDecomposition of the public pension expenditure to GDP ratio over 2007-2060 (%of GDP)2007 level Dependency Coverage Employment BenefitInteractionratio ratio effect ratioeffectcontribution contribution contribution contributionEU (27 countries) 10.1 8.7 -2.6 -0.7 -2.5 -0.6 12.5Germany 10.4 7.9 -1.9 -0.8 -2.2 -0.8 12.8Spain 8.4 10.7 -0.9 -0.9 -1.7 -0.5 15.1France 13.0 8.4 -2.2 -0.5 -4.0 -0.7 14.0Italy 14.0 10.4 -3.2 -1.1 -5.5 -1.0 13.6Sweden 9.5 5.6 -0.4 -0.4 -4.3 -0.6 9.4United Kingdom 6.6 4.2 -1.4 -0.3 0.5 -0.3 9.3Table 2: Decomposition of the public pension expenditure (Source: Commission service, EPC 2009).Old-age dependency ratio. This indicator provides the measure of the demographic burden for workinggenerations. As in previous Table2, it produces the main contribution to the change in levels of the pensionexpenditure. The inverse of this ratio is called support ratio. According to projections in EUROPOP2008, forcountries of EU27 as a whole the old–age-dependency ratio in 2010 starts at 0.2592, which means a support ratioof about four persons of working age for each person aged 65+, to reach in 2060 the value of 0.5255, that is in2060 only two persons will be in working age for each person over 65. Such a situation is lately severe in Italy forwhich the old–age-dependency ratio is projected to reach the value 0.5658 in 2060, see following Figure 1.Coverage ratio. The number of retirees usually exceeds the population over 65 years, as pensions are availableat younger ages of 65, which is generally the standard age for pension eligibility. In general, a higher age atretirement is associated with a lower proportion of pensioners below age 65 and, hence, with a lower coverageratio. In all the considered countries, the coverage ratio is projected decreasing, see following Table 3. This reflectsa general decreasing of the pensioners’ number below age 65 as the consequence of the increasing of the exit agefrom the labour market caused, in some cases like, e.g., Italy, by the recent implemented pension reforms. Theprojected decreasing in the coverage ratio contributes in a relative decreasing in the pension expenditure to GDP;such a reduction is more marked for Italy (-3.2 p.p.), see previous Table 2.Employment rate. The number of workers is smaller than population aged 15-64 years, because there is ashare of population that does not participate to the labour force. Over the period 2007-2060, the employmentrate – defined as the number of working people divided by the population aged 15-64 – is the lowest in Italy withrespect to other considered countries, see following Table 4. The projected increase in the employment ratiocontributes in limiting the increase in the pension expenditure level; we recall that in the pension expendituredecomposition the inverse of this ratio is considered. Therefore, reforms aiming to strengthen the potential ofeconomic growth are particularly relevant, for example stimulating people to stay longer in the labour market.602060level5550Old-age dependency ratio (%)4540353025202010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060Germany EU (27 countries) Spain France Italy Sweden United KingdomFig. 1: Old-age dependency ratio in 2010-2060 (Source of Data: Economic Policy Committee).