ECONOMY

Aging threatens pension systems

Europe needs reforms to tackle the problem of its aging population and the resulting economic impact, Bank of Greece Governor Nikos Garganas warned yesterday. «Demographic developments, such as higher life expectancy and a low fertility rate, will lead to a significant rise in the ratio of the number of those over 65 to the working-age population in all countries of the European Union… This development will significantly increase spending on pensions and health and reduce the number of those paying contributions,» he said at a public discussion in Athens with his Finnish and Luxembourgian counterparts, Erkki Liikanen and Yves Mersch respectively. According to Garganas, the degree to which such developments will affect living standards will depend both on the initial strength of each member state’s public finances, as well as on efforts to bolster growth rates, increase the percentage of the economically active population and rationalize pension systems. In Greece, among the reasons why the impact of the aging population will be stronger is the fact that the ratio of public debt to gross domestic product is very high, he said. «Postponing the adoption of policies for dealing with the repercussions of the aging population, such as reforms with a view to ensuring the viability of the social security system and the consolidation of public finances, only defers the problem which future generations will face,» Garganas said. Finland Liikanen said Finland’s main pension system reforms include on the one hand curtailing early retirement by providing incentives for staying on at work, and, on the other, changes in the ways pension increases are calculated and adjusted to rises in average life expectancy. He said the reforms so far appear to have limited the number of early retirements and that the main problems now faced by Finland in this domain are the high level of contributions and the need to improve the efficiency of health and welfare services. Mersch noted that reforms adopted by various countries include the introduction of capitalization schemes in their pension systems, incentives to deter early retirement and an increase in the number of working years on the basis of which pensions are calculated. He said introducing reforms is more difficult in countries where the current pension systems were shaped in times when average life expectancy was much lower and the structure of economic activity was considerably different.