Increased longevity is one of the most relevant changes with the most implications for modern societies. Life expectancy increases continuously and is currently a phenomenon that shows no signs of abating. Life expectancy for men at 60 in OECD countries has increased from 18 to 23.4 years, from the 1970s to date. There are clearly significant differences between cases, such as Latvia, where it has only increased by 1.5 years, and others, like Korea, where it has increased by 8.7 years. But that is not all. By 2050, the life expectancy of a 60-year-old person in the OECD will be 87.9.

Spain ranks prominently in this regard. It is actually one of the countries with the highest life expectancy, together with Japan, France and Switzerland. The life expectancy of a person born in Spain between 2015 and 2020 is more than 86. It will be close to 90 by mid-century.

In terms of retirement and pensions, our initial understanding is that if there are no changes in the retirement age, we are headed for longer and therefore more expensive retirements. Furthermore, the “baby boomers,” a numerous group of workers, will retire in the next few years. This will also give rise to pensions higher than the average of the system. On the other side of the scale, the fertility rate (1.3 children per woman in Spain) is far from the rate that guarantees generational replacement (2.1 children per woman). I.e., there is a shortage of future contributors.

Towards an aging population

This phenomenon is increasing the dependency ratio at a breakneck speed. This rate measures the ratio between people aged 65 and people at working age. In the OECD, this rate has risen from 19.5 to 27.9 retirees for every hundred people of working age, between 1975 and 2015. Projections forecast that it will double to 53.2 by 2050, but the compared groups would have to be reconfigured, since the retirement age is increasing, so the measurement should perhaps be made between people over 67 and those under 67, which would lower the ratio.

Where is Spain located on this map of the dependency ratio?

If in 2015 the dependency ratio in Spain stood at levels slightly higher than the OECD average (Spain: 30.6, OECD: 27.9, Japan: 46.2), the increase will be at breakneck speed, according to projections for 2050, resulting in the second-highest dependency ratio after Japan, and the highest in Europe: 77.5 people over 65 for every 100 people of working age. This ratio graphically illustrates the real challenge facing the pension system.

Source: www.jubilaciondefuturo.es

Date: 25.05.2018