July 16, 2011

Pension Choices Can Affect Global Economy

How countries change their pension systems and whether they do it in tandem have major implications for global economic health.

Since 1990, public pension spending has increased in an amount equal to 1¼ percent of gross domestic product (GDP) in the advanced economies in the Group of 20 (G-20). And a continuously aging population will cause further increases averaging about 1 percent of GDP in both advanced and emerging economies over the next 20 years (see Chart 1). Advanced economies that have not substantially changed their traditional pay-as-you-go pension systems are projected to experience larger spending increases than advanced economies that have legislated pension reform.

Among emerging economies, those with relatively high spending in 2010 are projected to experience the steepest increase in outlays over the next 20 years. In countries that do not cover a large segment of the elderly, such as China and India, the projected increase is much less severe, but could rise more rapidly if their systems expand to cover a larger share of the population. Moreover, advanced economies are experiencing sharp growth in the aged population now, but that will change after 2030, when emerging economies will experience a faster pace of aging. Full story>>

Source: IMF

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