Long-term challenges Economic and financial effects of population ageing on pensions, healthcare and old-age care
The structure of the Austrian population will change greatly in future decades. The so-called baby-boomer generation will leave the labour market. At the same time, however, the birth rate will remain low and life expectancy will continue to rise. As a result, the number of people aged 65 and over will almost double between today and 2060, while the potential labour force (ages 15 to 64) decreases over the same period.
Long-term demographic and economic changes
The current ratio of four working-age people to each person aged 65 and over is expected to fall to a ratio of two to one by 2060. This demographic change will have a significant effect on government budgets and economic growth in Austria. A smaller working-age population means lower economic growth than today, while population ageing will negatively impact public budgets by increasing expenditures for pensions, healthcare and old-age care.
In 2015, the Ageing Working Group (AWG) of the EU Economic Policy Committee (EPC) published its fifth update of the long-term projections of age-related public expenditures in the EU together with the European Commission (EC). The report calculated the long-term effects of population ageing on expenditures in the areas of pensions, healthcare, old-age care, education and unemployment benefits. The projections of these age-related EU expenditures were intended to show the challenges and potential need for reforms.
Change in expenditures by 2060
Age-related expenditures account for a substantial share of the public budget. Whereas total age-related expenditures in Austria make up for 27.9% of GDP today, this burden will increase – mainly due to the population ageing – by about 3 percentage points to 30.8% of GDP by 2060. The growth in age-related expenditures in the EU average turns out to be clearly lower with 1.4 percentage points of GDP (Euro area 1.5 percentage points of GDP).
In detail, gross public pension expenditures in Austria are projected to rise from 13.9% of GDP 2013 to a high of 14.7% of GDP by the year 2037. This is due to the baby-boom generation peak in retirement. Thereafter, gross pension expenditures will decline again and will end up 2060 at the level of 14.4% of GDP. Thereof, spending of the general pension insurance scheme is supposed to increase from 10.4% of GDP today to 13.4% of GDP in 2060, whilst the decrease of expenditures of the civil service pension scheme from 3.5% of GDP to 0.9% of GDP in 2060 will have a considerable dampening effect.
As for the remaining expenditure items the following paths are being projected:
- Health care expenditures: from 6.9% of GDP today to 8.2% of GDP by 2060 (+1.3 pp)
- Long‐term care expenditures: from 1.4% of GDP today to 2.6% of GDP by 2060 (+1.3 pp)
- Education expenditures: remaining constant at 4.9% of GDP from today to 2060 (+0 pp)
- Expenditures for unemployment benefits: from 0.8% of GDP today to 0.6% of GDP by 2060 (‐0.2 pp)