The pressure ageing populations are putting on public finances could cause advanced economies’ debt-to-gross domestic product ratios to increase massively if not addressed soon.
The percentage of over-65s compared to people of working age is expected to increase globally from 14.2% to 34% by 2050, putting ‘severe pressure’ on public spending for many countries.
The report by Fitch, Ageing costs: the second fiscal challenge, explains that ageing would also cause potential GDP growth to decline over the long term, making the situation even more difficult.
The rise in age-related spending is projected to average 4.1% of GDP a year by 2050 across the eurozone, an increase in spending comparable in size to that seen during the financial crisis in 2008/09 – albeit less sudden and less unexpected.
‘All else equal, an expenditure increase on this scale would push up public debt ratios by huge amounts by the middle of the century,’ Fitch said. Without reform, debt-to-GDP ratios could ‘explode’, it added.
Read more on this story in The Actuary. To find out more about the way the world is changing and how that affects the kinds of challenges the actuarial profession faces, take a look at the future of the pensions sector.