Pension Systems (Un)sustainability and Fiscal Constraints: A Comparative Analysis

The project evaluates the sustainability of the state pension systems of major advanced economies using a multi-period overlapping generations (OLG) model. The analysis takes a macroeconomic perspective, grounded on two novel contributions, one methodological, the other quantitative.

The quantitative contribution is to provide empirical evidence on the debt limits and the sustainability of the pension systems in the ten largest EU countries (Austria, Belgium, Finland, France, Germany, Italy, Ireland, Netherlands, Portugal, Spain), the United Kingdom and the United States. The model is calibrated to match key aggregate moments of the economy and fiscal sector in each country up to the pre-pandemic period (2019), conditional on the demographic structure and the pension system regulatory framework. The latter includes (i) the replacement ratio of pensions, (ii) the age of mandatory retirement, (iii) the regulations for early retirement and (iv) the rules determining the social security tax rate and base. We use this initial calibration to quantify the debt limits, the fiscal space and the probability of reaching the debt limit of each country in 2019. We then undertake two types of simulation exercises.

The project will provide a key analytical component of the Netspar research agenda which is to evaluate the adequacy and resilience of national pension systems, including that of the Netherlands. There are major challenges ahead for the sustainability of pension systems, such as the high levels of government indebtedness brought about by the Covid-19 pandemic, the scale and nature of ongoing economic trends, and the implications these have for economic growth and inflation. National pension sustainability also has important potential issues for any future fiscal co-ordination in the EU. The applicants have a long track record in studying fiscal policy and in applying the methodologies proposed in this project. They also have detailed knowledge and access to data on up-to-date pension system regulations in the countries to be included in the research.

Read the paper here.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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