2015 Ageing Report Per Eckefeldt European Commission Directorate General for Economic and Financial Affairs

Transcription

1 2015 Ageing Report Per Eckefeldt European Commission Directorate General for Economic and Financial Affairs Workhop on Pensions Luxembourg, 14 November

2 Outline What's next? Preparation of the 2015 Ageing Report Making use of long-term projections Long-term challenges 2015 Ageing Report on underlying assumptions 2

3 2015 Ageing Report (1) Joint Commission (ECFIN)-EPC (AWG) long-term projection exercise 2015 Ageing Report Fifth update of the joint EPC-Commission long-term projections (previous 2001, 2006, 2009 and 2012). Mandate of the ECOFIN Council (May 2012) "The Council INVITES the Economic Policy Committee to update, on the basis of new population projections to be provided by Eurostat, its analysis of the economic and budgetary implications of ageing by the autumn of 2015" 3

4 2015 Ageing Report (2) The 2015 budgetary projection exercise is proceeding in accordance with the EPC mandate Agreement reached on the demographic and macroeconomic assumptions Demographics: EUROPOP2013 Macro-economic assumptions: A novelty is the decision by the AWG and EPC to use, as starting point, the new OGWG methodology for potential growth and its components until t+10 (2023). Labour force participation and input: the Cohort Simulation Model (CSM) used to project future participation rates by single age and gender. Unemployment rates: on 22 May, the EPC decided on NAWRU anchors for the 2015 AR. 4

5 2015 Ageing Report (3) Labour productivity: on 22 May, the EPC decided that both a baseline scenario (1%) and a risk scenario (0,8%) should be used in the 2015 Ageing Report. Interest rates: a real long-term interest rate of 3% (5% nominal) retained. GDP projections: account is taken of the cyclical position of the economy by closing the GDP output gaps over the medium-term. Agreement reached on the projection methodologies for pension, health care, long-term care, education and unemployment benefit spending Budgetary projections (pension and other expenditure) almost on track 5

6 2015 Ageing Report (4) 2015 Ageing Report: Underlying Assumptions and Projection Methodologies Report, released in November 2014 Pension peer reviews in September, October, November and December Ageing Report due in March

7 Policy challenges in the EU (1) Need for fiscal consolidation at this important juncture Reforming of pension and health care systems to reduce future expected public spending, while politically challenging, could also enhance the credibility of government action It can provide some fiscal space for fiscal consolidation to be pursued at a more gradual pace in the short run The Commission takes a comprehensive approach with the Europe 2020 strategy, with a focus on pension policies in the Annual Growth Survey 7

8 Policy challenges in the EU (2) ECFIN thematic assessment framework (TAFs) for reforms improving fiscal sustainability in the fields of: Pension policy Health care policy Long-term care policy

9 Policy challenges in the EU (3) The Commission set out its line in the Annual Growth Surveys on pension-related issues: upward adjustment of the retirement age, linking it with changes in life expectancy in the future restricting access to early retirement, encourage employability of older workers including life-long learning encouraging the development of supplementary pillars so as to support retirement incomes in old age Reforms of health care systems increasingly in the policy debate and the European Semester

10 2015 Ageing Report Labour force Pensions National models - Participation - Employment - Unemployment Population Labour productivity GDP Health care Long-term care Total agerelated spending Real interest rate Education Unemployment benefits

11 Demography

12 Population Old-age dependency projections: ratios EU: OADR from28% to 50% EA EU

13 Potential economic growth labour force Participation rates by Population projections single age (LFS) by single age projections (EUROPOP) Impact of enacted pensions' reforms (1) Cohort methodology Labour force NAWRU assumption (2) Disaggregation to labour suppy Unemployment Employment (3) Transformation in part-time & fulltime employment Part-time rate by age groups (LFS) (4) Transformation in hours worked Actual weekly hours worked by Full-time/Parttime job (LFS) Total hours worked 13

14 Participation rate projections: the cohort approach The cohort approach: participation rates are projected for each single year of age and gender Two Main Features of the Methodology: 1) Use of entry rates and exit rates average kept constant over the period of projections 2) Incorporate the impact of pension reforms

15 Cohort effects particularly relevant for women with those born in the late 1960s and 1970s more likely to participate over the life-cycle

16 Pension reform (1) example of IT

17 Pension reform (2) example of IT

18 Pension reform (3) rates participation EU EU 100% 90% 90% 80% 70% 60% 50% 40% 30% 20% 10% 80% 70% 60% 50% 40% 30% 20% 10% 0% % PR Men 2013 PR Men 2060 PR Women 2013 PR Women 2060

19 Potential economic growth 19

20 Trend TFP growth developments (1): long-term trend decline and the crisis suggest subdued growth prospects Trend TFP Growth Rates in the Euro Area ( ) Euro Area EA average minimum 3 EA average maximum 3 20

21 Trend TFP growth developments (2): growing divergence in productivity levels between the euro area and the US (observed also before the crisis) Productivity level trends in the Euro area vs. the US (US=100) TFP Capital Intensity (in PPS per Hour Worked) 21

22 EL FI CY IT NL HR DE PT EA SI FR BE IE EU28 UK CZ AT ES HU EE MT DK LT SE NO BG RO LV SK LU PL Potential growth rates: variety in the EU ( ) Actual growth Potential growth 22

23 Potential growth rates stabilizing slightly below 1 ½ % 1.8 Potential GDP growth - European Union % change AR 2015 AR 2015 AR - TFP risk scenario 23

24 Labour force Pensions National models - Participation - Employment - Unemployment Population Labour productivity GDP Health care Long-term care Total agerelated spending Real interest rate Education Unemployment benefits

25 Pensions National models using commonly agreed underlying assumptions (demographic and macroeconomic) to capture the country-specific institutional setting in the MS Baseline projection and sensitivity tests: TFP risk scenario,life expectancy, employment (i) older workers; (ii) all ages, productivity growth, migration scenario, policy scenario (retirement age lin to life expectancy) Harmonised reporting framework agreed with MS Public pension expenditure (different breakdowns) Pension contributions/contributors Benefit ratios and replacement rates

26 Othe expenditure items Long-term projections baseline and alternative scenarios - for: health care long-term care education expenditure unemployment benefit expenditure

27 What next? Debt sustainability analysis Government debt is very high in the EU, but attaining the budgetary targets (MTOs) would set it on a clear downward path towards 60% of GDP Gross debt as % of GDP - EU28 - Medium term debt projections Baseline no-policy change scenario No-policy change scenario without ageing costs Historical SPB scenario Combined historical scenario Gross debt as % of GDP - EU28 - Medium term debt projections Baseline no-policy change scenario Stability and Growth Pact (SGP) institutional scenario Stability and Convergence Programme (SCP) scenario 27

28 2015 Ageing Report available on DG ECFINs website _finance/ Thank you for your attention!