17 January 2019
Japan
Laurence BooneOECD Chief Economist
Fiscal challenges and inclusive
growth in ageing societies
2
G20 populations are ageing rapidly
Source: National sources; Eurostat Population Projections (2008 revision); UN World Population Prospects, 1950-2050
(The 2008 Revision); United Nations World Population Prospects: The 2017 Revision.
Old-age dependency ratiosNumber of people older than 65 years per
100 people of working-age (20-64)
0
10
20
30
40
50
60
70
80
90
0
10
20
30
40
50
60
70
80
90
2015 2060
65 70 75 80 85 90 95
Indonesia
South Africa
India
Saudi Arabia
Russia
China
Turkey
Argentina
Brazil
Mexico
Germany
United States
United Kingdom
Korea
Italy
Canada
Australia
France
Japan
Years
1980 2015 2060
Expected life expectancy at age 65
3
G20 debt burden is already elevated
Note: LHS panel: Public debt ratios are based on the national accounts definitions except for EU countries where debt
ratios based on Maastricht criteria are shown. RHS panel: Total stock of debt liabilities issued by the general government
Sources: OECD Economic Outlook database, and IMF Global Debt database.
G20 Emerging EconomiesG20 Advanced Economies
0
50
100
150
200
250
0
50
100
150
200
250
2017 2007% of GDP % of GDP
0
10
20
30
40
50
60
70
80
90
0
10
20
30
40
50
60
70
80
90
2017 2007% of GDP % of GDP
WHAT ARE THE COSTS OF AGEING?
4
5
Ageing will weigh on living standards in most
G20 countries
Source: The Long View: Scenarios for the world economy to 2060, OECD Economic Policy Paper, Guillemette and Turner (2018).
Working-age population contribution to GDP
per capita growth between 2030 and 2060
By country, % per annum
Working-age population contribution to GDP
per capita growth between 2018 and 2030
By country, % per annum
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
%
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
%
6
Ageing will increase public pension
expenditure
Public expenditures on pensions
Note: * 2015 or latest available. **Projections are until 2060 for France, Germany, Italy and the United Kingdom; 2055 for
Australia; and 2050 for the others. Projections assume no further policy changes in the projection period.
Source: European Commission and Standard and Poor's.
0
2
4
6
8
10
12
14
16
18
20
0
2
4
6
8
10
12
14
16
18
20
2015* 2060**% of GDP % of GDP
7
Ageing will increase health expenditures
Public health spending today Public health spending projections
Note: Public health expenditures includes long-term health care spending. LHS panel: Expenditure excludes investments,
unless otherwise stated. 1. Australian expenditure estimates exclude all expenditure for residential aged care facilities in
welfare (social) services. 2. Includes investments.
Source: OECD Health Statistics 2017 database; OECD Long-Term Model; and OECD calculations.
0
2
4
6
8
10
12
14
16
18
0
2
4
6
8
10
12
14
16
182016 2030 2060
% of GDP % of GDP
0
2
4
6
8
10
12
14
16
18
0
2
4
6
8
10
12
14
16
18
2016 or latest available 2000% of GDP % of GDP
8
Ageing increase fiscal pressures
Change in tax revenue necessary by 2060 to stabilize debt ratios at current levels
Note: Projections are based on current policy settings. Based on projected government pension expenditures from
European Commission (2018) and Standard and Poor’s (2016), and projected growth in public health care expenditure per
capita with the methodology of Marino et al. (2017). Other primary expenditure is assumed to remain constant in real
terms on a per capita basis. “Other factors” mostly capture the initial gap between primary revenue and the level that
would stabilise the debt to GDP ratio, but also changes in GDP growth rates over the projection period.
Source: Guillemette and Turner (2018).
-5
0
5
10
15
-5
0
5
10
15
NLD AUS FRA GBR ITA KOR DEU ESP JPN CAN USA
% of potential GDP
Health expenditure Pension expenditure Other primary expenditure Other factors Total
% of potential GDP
9
Ageing could exacerbate poverty risk
0
10
20
30
40
50
60
%66-75 76+ Whole population
Poverty rate is highest above 75 yearsBy age
Note: 2016 or latest year available. Poverty defined as having incomes below 50% of median equivalised household
disposable income, after taxes and transfers.
Source: OECD Income Distribution database.
REFORMS TO ADDRESS AGEING COSTS
10
11
Standard structural reforms can help boost
living standards
Per cent increase in GDP per capita
by 2060 relative to baseline with
product market liberalization
Note: LHS panel: OECD countries are assumed to implement a package of reforms over the 2020-to-2030 period that would improve OECD
measures of product market regulation to the average levels for the five leading countries. RHS panel: OECD countries are assumed to
implement a permanent policy reform package between 2020 and 2030 that would close half of the current gaps relative to simple averages of
five policy indicators for the five leading countries. Policy indicators are: public spending on active labour market policies per unemployed
person, union bargaining excess coverage, public spending on family benefits in kind, maternity leaves and tax wedges for single earners.
Source: The Long View: Scenarios for the world economy to 2060, OECD Economic Policy Paper, Guillemette and Turner (2018).
-5
0
5
10
15
20
25
-5
0
5
10
15
20
25
Employment rate Capital per worker
TFP Real GDP per capita% %
-2
0
2
4
6
8
10
12
14
16
-2
0
2
4
6
8
10
12
14
16
Employment rate Capital per worker
TFP Real GDP per capita% %
Per cent increase in GDP per capita
by 2060 relative to baseline with
labour market reforms
12
Educational attainment and life expectancy are important
drivers of the increased participation of older people
Decomposition of change in participation rate of 55-to-74 years oldChange 2002 to 2017, percentage points of the population aged 55 to 74
Note: ‘Other factors’ include changes in sex composition, changes in unemployment gaps and interactions effects that
cannot be attributed to specific factors. The unexplained component is the difference between the actual change in the
participation rate of 55-to-74 years-olds according to OECD labour force statistics and the model prediction.
Source: OECD labour force statistics and OECD calculations.
-10
-5
0
5
10
15
20
25
-10
-5
0
5
10
15
20
25
USA JPN GBR FRA CAN ESP ITA NLD DEU
Education Life expectancy Age composition
Pension wealth Statutory retirement ages Other factors and unexplained
Actual% pts % pts
13
Highly educated older workers are more
employable
Employment rates of older workers55 to 64, by educational group
Note: Data on upper-secondary education or below are not available for Japan.
Source: Calculations from the OECD Education Database.
0
20
40
60
80
100
% Tertiary education Upper-secondary education No upper-secondary education
14
Retirement ages will continue to increase
further in some countries
Note: Retirement age for men entering the labour at age 20. Future retirement age is for people who entered the labour force
in 2016, based on currently legislated provisions. Announced but not yet legislated measures are not reflected.
Source: OECD Pensions at a Glance dataset.
Statutory retirement age in G20 countries
By country
40 45 50 55 60 65 70 75
ItalyUnited States
AustraliaCanada
GermanyJapan
MexicoUnited Kingdom
ArgentinaEU 28
FranceKorea
TurkeyChina
RussiaSouth AfricaSaudi Arabia
IndiaIndonesia
Brazil
Current Future
15
Linking retirement age to life expectancy could
improve living standards
Increase in GDP per capita by 2060 if minimum and normal retirement ages rise by
at least two-thirds of gains in life expectancy at 65, relative to baseline
Source: OECD calculations.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
JPN AUS GBR DEU FRA ESP USA ARG CAN IND CHL BRA MEX CHN
%
16
Automatic adjustments are more common
after recent reforms
• Link retirement age to life expectancy: Denmark,
Finland, Italy, the Netherlands, Portugal, Slovak
Republic
• Automatic adjustments of benefits:
• To life expectancy
• To dependency ratios or fiscal balances of PAYGO
(paying attention to low income earners)
• Germany, Japan, Portugal, Spain, Sweden
• Flexible retirement (combining work+retirement;
retirement age) with adequate financial incentives:
e.g. Germany
17
Make better use of migrants’ skills
-20
-10
0
10
20
30
Low-educated Highly educated% pts
Differences in employment rates between foreign-born and native,
by level of education, 2015-16
Key messages
18
Lifting employment and productivity key to ensure fiscal sustainability and foster inclusiveness in ageing societies
Pension and social security reforms need to address double challenge of ensuring fiscal sustainability and providing adequate coverage
• Tackle barriers to employment of older workers such as mandatory retirement, lack of flexible work arrangements and seniority wage settings
• Promote skills development for older workers and life long-learning• Improve labour force participation of women, youth and migrants
• Link retirement age to life expectancy and allowing for flexible
work/retirement with adequate financial incentives
• Health systems: contain costs and improve efficiency to ensure fiscal
sustainability
• In emerging G20 countries, reducing informality to ensure sufficient
coverage and financing of pensions, health and LTC is the key challenge
ADDITIONAL SLIDES COULD MITIGATE AGEING COSTS?
19
20
Income sources of older people vary widely
Note: Public transfers include public transfers earnings-related pensions and resource-tested benefits. Income from work
includes both earnings (employment income) and income from self-employment. Capital income includes private pensions as
well as income from the returns on non-pension savings. The data shown are for disposable incomes (i.e., net of personal
income tax and social security contributions), measured on a household basis and adjusted for differences in household size.
Source: OECD Income Distribution Database.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Korea
Mexico
Canada
United States
Japan
Turkey
Australia
Spain
United Kingdom
Germany
Italy
France
Netherlands
Public transfers Occupational transfers
Private pensions and returns from non-pension savings Labour income (incl. self-employment)
Income sources of people over 652014 or latest available year
21
Persistently low interest rates pose challenges for
solvency and adequacy of private pension systems
-2
0
2
4
6
8
10
12
14
16
1980 1985 1990 1995 2000 2005 2010 2015
United States Japan Euro area United Kingdom%
Long-term interest rates
Source: Thomson Reuters.
22
Life-long learning is important,
particularly for older workers
Workers’ participation in training% of all employed in each age group, 2012
0
10
20
30
40
50
60
70
55-64 25-54%
Workers reporting lack of computer skills2012
Note: Left:: average of 22 OECD economies Right: Job-related training during year prior to the survey in 2012. The
OECD average from PIAAC excludes Hungary, Iceland, Latvia, Luxembourg, Mexico, Portugal and Switzerland
Source: OECD estimations from the OECD Survey of Adult Skills (PIAAC).
0
2
4
6
8
10
12
16-24 25-34 35-44 45-54 55-65
%
23
Participation of older people can increase
further
Change in the participation rate of 55-to-74 year-olds2002-2017 with contributions by sex
-5
0
5
10
15
20
25
-5
0
5
10
15
20
25
TUR MEX USA JPN KOR GBR OECD FRA CAN AUS ITA DEU
Male Female Total% pts % pts
Source: OECD labour force statistics and OECD calculations.
24
Pursue the reduction of early retirement
programmes
Participants in early retirements programmes in selected countries% of population aged 55 to 64
Note: the countries selected are those with long time series. Early retirement programmes are defined as those
facilitating full or partial early retirement of older workers who are assumed to have little chance of finding a job or
whose retirement facilitates the placement of an unemployed person or a person from another target group. Early
retirement benefits normally cease when the beneficiary becomes entitled to an old age pension. Data for Poland are
not available before 2005.
Source: OECD Labour Market Programmes database and Labour Force statistics.
0
5
10
15
20
25
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Belgium Denmark Finland France Italy Germany
25
Normal retirement ages are not keeping pace with
increases in life expectancy
Change in normal retirement age relative to life expectancy at 65
Under currently legislated rules, change 2016 to 2060, difference in years
Note: The figure shows the differences between the increase in the normal retirement age and the increase in life expectancy at age 65
over the period 2016 to 2060 on average for men and women. Retirement age for men and women entering the labour market at age
20. Future retirement age is for people who entered the labour force in 2016, based on currently legislated provisions. Announced but
not yet legislated measures are not reflected.
Source: OECD Pensions at a Glance dataset ; United Nations World Population Prospects: The 2017 Revision ; and OECD
calculations
-8
-4
0
4
8
Years
26
Room to increase contribution rates to increase
pension adequacy differs across G20 countries
Mandatory pension contribution rates for an average worker in 2016% of gross earnings of the worker
Note: Contribution rates include employee and employer contributions. The rates for both employee and employer are based on the gross
earnings of the worker. * indicates social insurance contribution, including non-pension benefits
Source: OECD Pension at a Glance 2017.
0
5
10
15
20
25
30
35
Public Private%
27
Replacement rate and sources vary among
G20 countries
Future gross pension replacement rates from mandatory public,
private and voluntary private pension schemesPercent of individual earnings, average earner
Note: Theoretical gross replacement rates, computed for an individual who enters the labour market in 2016, earns the average income and
contributes for a full career, 2016 legislation
Source: OECD pension models.
0
20
40
60
80
100
120Mandatory public Mandatory private Voluntary
28
Replacement rate vary among G20 countries
Projected future net replacement rates from mandatory pension schemes
Note: The future net replacement rate is estimated assuming labour market entry at age 20 in 2016 and a working life equal to the normal
pensionable age in each country. This normal pensionable age is defined as the age at which individuals can first withdraw their full pension
benefits, without actuarial reductions or penalties. The net replacement rates shown are calculated for mandatory schemes for an individual
with 100% and 50% of average worker earnings.
Source: OECD calculations based on the pension model
0
20
40
60
80
100
120
% Low earner Average earner
29
Improving financial literacy can help make better informed
retirement choices and increase voluntary savings for
retirement
Financial literacy% of respondents achieving the minimum target score on financial knowledge
0
10
20
30
40
50
60
70
80
90
100
%
Note: The minimum target score is reached when answering 70% of the financial knowledge questions correctly. G20 is the simple average
of the country percentages for all G20 countries with comparable data. G20 countries that are excluded from this figure do not have
comparable data.
Source: G20/OECD INFE report on adult financial literacy in G20 countries.