Global Trends in Public Pension
Spending and Outlook
Benedict Clements
Fiscal Affairs Department
International Monetary Fund January 2013
This presentation represents the views of the author and should not be attributed to the IMF, its Executive Board, or its management.
Plan of Presentation
2
I. Trends and drivers of public pension spending in
advanced and emerging economies
II. Fiscal context and projected spending increases
III. Risks to projections
IV. Conclusions
I. Trends and drivers of
public pension spending
3
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
Pe
nsio
n S
pen
din
g, p
erc
ent o
f G
DP
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.
0.9
0.3
2.0
-0.1
1.5
-0.6
1.1
-0.5
-3
-2
-1
0
1
2
3 A
gin
g
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
1970-1990 (Advanced)
1990-2010 (Advanced)
Co
ntr
ibutio
n to
Sp
en
din
g G
row
th
Evolution of Public Pension Expenditures in Advanced Economies, 1970–2010
(Percent of GDP)
5
Higher replacement rates and aging have
driven spending in advanced economies
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1970 1980 1990 2000 2010
Pensio
n S
pendin
g, perc
ent of G
DP
Australia Japan Korea New Zealand
6
Trends vary across countries
Sources: OECD, ILO, UN, and IMF staff estimates.
0.7
-0.4
0.5
-0.2
4.8
-2.3
2.7
-0.4
-3
-1
1
3
5 A
gin
g
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
1990-2010 (Australia)
1990-2010 (Japan)
Co
ntr
ibutio
n to
Sp
en
din
g G
row
th
Evolution of Public Pension Expenditures in Advanced Asia and Pacific, 1990–2010
(Percent of GDP)
7
Higher replacement rates and aging have
driven spending in advanced economies
Sources: OECD, ILO, UN, and IMF staff estimates.
0.9
-0.1
0.1
-0.1
1.1
-3.8
0.9
-0.8
-4
-2
0
2 A
gin
g
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
1990-2010 (Korea)
1990-2010 (New Zealand)
Co
ntr
ibutio
n to
Sp
en
din
g G
row
th
Evolution of Public Pension Expenditures in Advanced Asia and Pacific, 1990–2010
(Percent of GDP)
8
Higher replacement rates and aging have
driven spending in advanced economies
Sources: OECD, ILO, UN, and IMF staff estimates.
0
2
4
6
8
10
12
1990 2000 2010
Pe
nsio
n S
pen
din
g, p
erc
ent o
f G
DP
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, 1990–2010
(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, and
Thailand. Other emerging includes Argentina, Brazil, Chile, Colombia, Egypt, Jordan, Mexico, Saudi Arabia,
and South Africa.
1.8
-1.5
2.1
0.7 1.0
-0.4
0.7
-0.3
0.2 0.0
0.9
0.0
-3
-2
-1
0
1
2
3 A
gin
g
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Repla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
ation
1990-2010 (Emerging Europe)
1990-2010 (Other Emerging)
1990-2010 (Emerging Asia)
Co
ntr
ibu
tio
n to
Sp
en
din
g G
row
th
10
Higher replacement rates and aging have
driven spending in emerging economies
Evolution of Public Pension Expenditures in Emerging Economies, 1990–2010
(Percent of GDP)
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
ISL IRL
KOR
NZL SVK USA
AUS
AUT
BEL
CAN
CZE DNK
FIN
FRA GRC
LUX NLD NOR
PRT
SVN ESP SWE
CHE
GBR
GER
ITA
JPN
0
4
8
12
16
20
0 10 20 30 40 50 60 70
Spendin
g (
perc
ent
of
GD
P)
Replacement Rate (percent of average wage)
Advanced
IND IDN
MYS
PAK PHL SAU ZAF
TUR
EGY JOR
ARG
BRA
CHN
CHL
MEX
POL
RUS
THA
BGR
EST HUN
LVA
LTU ROM
UKR
0
4
8
12
16
20
0 10 20 30 40 50 60 70
Spendin
g (
perc
ent
of
GD
P)
Replacement Rate (percent of average wage)
Emerging
0 2 4 6 8 10 12 14 16
-80 120 Old-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.
II. Fiscal context and projected spending
increases
12
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 II Great
Recession
Source: IMF.
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.
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
Implications for fiscal policy and pensions
Fiscal adjustment needs are high in many advanced
economies
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
-2
0
2
4
6
Luxem
bourg
Kore
a
Slo
venia
Belg
ium
Neth
erla
nds
New
Ze
ala
nd
Norw
ay
Sw
itzerla
nd
Fin
land
Canada
United S
tate
s
Germ
any
Austr
ia
Austr
alia
Irela
nd
Port
ugal
Slo
vakia
Spain
Unite
d K
ing
dom
Icela
nd
Gre
ece
Fra
nce
Czech R
epublic
Japan
Denm
ark
Sw
eden
Italy
Average=1.2
-4
-2
0
2
4
6
8
Tu
rkey
Egypt
Chin
a
Jord
an
Russia
Saudi A
rabia
Mala
ysia
Ukra
ine
Rom
ania
Arg
entin
a
Bra
zil
Mexic
o
Latv
ia
Phili
ppin
es
So
uth
Afr
ica
Lithuania
Th
aila
nd
Indonesia
Pakis
tan
India
Bulg
aria
Chile
Pola
nd
Esto
nia
Hun
ga
ry
Average=1.0
Increase in Pension Spending, 2010–2030
(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.
18
Enacted reforms are expected to help contain impact of
population aging on spending in advanced economies
Evolution of Public Pension Expenditures, 2010–2030
(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
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
2010-2030 (Other Advanced)
2010-2030 (Advanced Asia and Pacific)
Co
ntr
ibutio
n to
Sp
en
din
g G
row
th
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Labor
forc
e
part
icip
atio
n
Ag
ing
Elig
ibili
ty
Re
pla
cem
ent
rate
Lab
or
forc
e
part
icip
atio
n
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, 2010–2030
(Percent of GDP)
Sources: OECD, EC, ILO, UN, and IMF staff estimates.
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
21
Other risks
Reform reversal
(Reform impact >5 percentage points
of GDP in 2030 spending)
Austria, France, Hungary, Italy, and
Poland
Shortfalls in private DB plans
(DB plans 30 percent or more
underfunded in 2009)
Belgium, Japan, and Sweden
High share in private DC plans
(Pension fund assets >40 percent of
GDP)
Australia, Canada, Denmark, Finland,
Iceland, Ireland, Netherlands,
Switzerland, the United Kingdom, and
the United States
Considerable uncertainty and upside risks to
projections
22
IV. Conclusions
Public pension spending has increased in advanced
and 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
23
Thank you!
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