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Pensions

DG ECFIN analyses public pension expenditure projections to gauge the size and timing of future changes in pension expenditure and the underlying driving factors. ECFIN also analyses the sensitivity of the projections to certain economic and demographic assumptions. Pension expenditure increases due to population ageing, and the assessment of pension reforms are areas of particular importance covered in these activities.

The age-related expenditure projections are produced through co-operation between national authorities and Commission services (DG ECFIN). The projections of public pension expenditures are made by the working group on Ageing Populations of the Economic Policy Committee (EPC), using national pension models. These projections are made on the basis of common population and labour force projections and common underlying economic assumptions endorsed by the EPC. The baseline projections are made on the basis of 'no policy change', i.e. only reflecting current legislation and excluding possible future policy changes (although account is taken of provisions in enacted legislation that will enter into force in forthcoming years).

The main areas covered are:

  • Projection on pension expenditure: national models are used to make the projections on pensions. These models take account of the key characteristics of each national pension system.
  • Breakdown of pension spending projections: the results of the projections are broken down to get a better understanding of the factors driving the increase in pension spending. These factors include: dependency effects, employment effects, eligibility effects and benefit effects.
  • Sensitivity tests: these are carried out in addition to the baseline scenario to quantify the responsiveness of projection results to changes in key underlying assumptions – for example, lower than projected economic growth.

DG ECFIN's contributions include analytical reports and publications as well as notes to the Economic and Financial Committee and the Economic Policy Committee and its working groups, and briefings, speeches and inputs to the Commission's work in general.

These contributions feed into the policy debate and the assessments and recommendations in various coordination processes, such as the Lisbon Strategy for growth and jobs, the Stability and Growth Pact and the Open method of coordination on Social Protection. Age-related expenditure projections, including pensions, form the basis for the assessment of the long-term sustainability of public finances in the context of the Stability and Growth Pact. DG ECFIN contributes to the Open method of co-ordination on Social Protection regarding the sustainability of pension systems.