Beginning in 2001, the European Union (EU) has periodically published long-term projections of aging-related public expenditures expected to be incurred by member country governments. The latest iteration of this report, published in April, reaffirms that the developed world is undergoing a dramatic demographic transformation that will continue to unfold for several more decades and will require significant and ongoing programmatic adjustments.
The EU projections are based on the submission of data from member states together with unified modeling carried out by the European Commission (EC). The focus is on budgetary pressures associated with an aging population, particularly in relation to publicly sponsored old-age pensions, health and long-term care costs, and education costs. Member States model their old-age pension programs separately and submit additional data enabling a consistent forecast for other relevant parts of the EU forecast.
The starting point for EU projections is an estimate of each country’s population profile over the next half century, ending in 2070. Figure 1 provides an overview of demographic forecast ratios for the EU as a whole, for some of the members its largest states, and also for the US (using data from the last trusted Social Security report).
As shown, the EU is expected to experience an absolute population decline of 3.8 percent, from 449.1 million in 2022 to 431.9 million in 2070. Among the largest EU countries, France and Germany are projected to see modest population growth ( of 2.5 and 0.4 percent, respectively) while Italy’s population will decline by 9.7 percent. In contrast, the US population is estimated by Social Security administrators to grow by 22.7 percent over the same period.
Figure 1. Total population (millions)
The most important variable that determines these long-term population trends is the birth rate. Across all its member states, the EU expects the total fertility rate (TFR) to rise from 1.50 in 2022 to 1.62 in 2070. Social Security Administrators are more optimistic about the US, with their forecasts of intermediates showing TFR increasing from 1.66 in 2022 to 1.90 in 2036, where it then remains constant throughout the remainder of the projection period. If the US TFR were to stagnate and not grow, the negative effect on Social Security’s financial outlook would be significant.
Figure 2. Age composition percentages
These assumptions produce different estimates of population percentages over time, as shown in Figure 2. In the EU, the working-age population (those aged 20 to 64) is expected to decline from 58.6 percent of the total in 2022 to 51.6 percent in 2070 For the US, the decline is less severe, from 58.1 percent to 53.8 percent. The different expectations for the ratios of the elderly (those aged 65 and over) to the total population are even more dramatic. For the EU, the percentage is expected to increase to over 30 percent by 2070, while in the US it goes up to only 23.2 percent. For Italy, the share of the total population that is 65 years or older is expected to increase from 23.9 percent in 2022 to 33.7 percent in 2070.
A notable finding in the EU study is that this unprecedented demographic change is not expected to overburden the public budgets of its members, largely because many of the affected governments have spent the last three decades preparing for the transition with reforms. essential, especially in relation to the old ones. old age pensions. As shown in Figure 3, the EU projects the overall effects of aging to increase budgetary costs for its member governments by just 1.2 percentage points of GDP.
A major factor in this relatively benign forecast is the minimal increase in spending related to old-age pensions. In EU projections, public spending on pensions will be 11.8 percent of GDP in 2070, or just 0.4 percentage points above what it was in 2022. For Italy, the corresponding figure is 13.7 percent of GDP. , which is well below the 15.6 percent of GDP spent in 2022. This decline is linked to reforms adopted in recent decades that the EU says will lower the average replacement rate (relative to average earnings) from 45.0 percent in 2022 to 38.2 percent in 2070. Spain is an exceptional country in this regard. with pension spending expected to rise from 13.1 percent of GDP in 2022 to 16.7 percent in 2070.
Figure 3. Age-related public expenditure (percentage of GDP)
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