Aging and Pensions in the Euro Area

Population aging will impose a significant burden on European pay-as-you-go pension systems. This study presents an estimate of this burden for the four largest euro-area countries and assesses alternative reform approaches. With prudent and realistic assumptions, the present value of future pension deficits through 2050 is estimated at 64% of GDP, adding to the current average explicit debt stock of around 70% of GDP. Feasible parametric reforms represent no durable solution, as they can balance pension systems at best temporarily. A comprehensive reform, including changes to current systems and a move towards partial funding, can ensure permanent financial sustainability of the public pension system.