(Finance) – In Italy, in 2023 the stock of pensions remained essentially unchanged. Although a growing share of pensions is paid under a contributory system, and is therefore linked to the contributions paid over the course of the beneficiaries’ working lives, the question of sustainability remains as the benefit financing system is pay-as-you-go, i.e. the contributions received in a given year are used to provide pension payments for the same year. The pay-as-you-go financing system is the one currently used in the vast majority of mandatory public social security systems. If the amount of benefits provided exceeds the contributions paid by workers and companies, one is determined structural imbalance of the system that must be compensated and this generally occurs with State transfers charged to general taxation.
The Report “The nature of the income and expenditure of the INPS in relation to the social security and welfare dimension of the benefits” presented yesterday by the Institute’s Steering and Supervisory Council highlights that the imbalance can derive from the generosity of the benefits, frequent in the case of benefits determined with the remuneration method and therefore unrelated to the amount of contributions paid by the worker, but also to demographic aging for which there is an increase in pension benefits to be paid which is not counterbalanced by an increase in contributions. The aging of the populationwhich is associated with an increase in the median age, a decline in fertility and a reduction in the working age population, is currently the main risk factor for the sustainability of pension systems across the European Union.
January 1, 2023 the median age of the European Union population has reached 44.5 yearsso half of the European population was over 44.5 years old and the other half was under 44.5. Over 20 years, the median has increased by 5.2 years (by 3 months per year, on average) from 39.3 years in 2004. The countries with the lowest median age, under 40, are Cyprus, the Ireland and Luxembourg; those with the highest median are Italy (48.4 years), Portugal (47 years) and Greece (46.5 years). Over the last 5 years, the median has increased in all European countries except Germany and Sweden, where it has remained unchanged, and in Malta, where it has decreased by one year. In Italy, Greece and Spain the increase was approximately 4 years.
On the one hand, a decline in fertility has contributed to the increase in the median age, and on the other, a increase in life expectancy. In 2022, the latest year for which there are comparable data, in the European Union, the fertility rate was 1.46 children per woman, the lowest value since 2004. France recorded the highest fertility rate (1 .79), followed by Romania (1.71) and Bulgaria (1.65). The lowest fertility was found in Malta (1.08), Spain (1.16) and Italy (1.24). Overall, in Italy there were 388 thousand births in 2022 compared to 409 thousand in 2021, continuing the decline that began in 2008, when there were 468 thousand births. As regards the second determinant of population aging, that is, life expectancy at 65 years of age, in 2023 the European average was 20.2 years (21.9 for women and 18.5 for men). The highest value was recorded in Spain and France (22 years) and Italy (21.5 years) and the lowest in Bulgaria (16.7 years).
Based on Eurostat forecaststhe European fertility rate will increase slightly, albeit very slowly, and it is estimated that it will reach the value of 1.62 children per woman in 2070, a level still well below the replacement threshold of 2.1 children per woman. Life expectancy will also increase, to 86.1 years for men and 90.4 years for women, with a slight reduction in the gender gap. To compensate for the effect of these two factors on the demographic structure of the population migratory flows will not be sufficient. In fact, a positive net migration rate is expected for all EU countries, but the estimate is that between now and 2070 it will stand at an average annual value of 0.3% of the population.
In light of these hypotheses, the forecast is for a strong increase in the dependency rateor the ratio between subjects over 64 years of age and subjects aged between 20 and 64 years. In 2022, the average dependency rate in the European Union was 36%, corresponding to approximately 3 young people for 1 elderly person. The highest values were recorded in Italy (41.0%) and Portugal (41.2%), the lowest in Ireland (25.8%). Estimates relating to trends in fertility, life expectancy and migratory flows predict an increase in this ratio and, therefore, a worsening of the relationship between pensioners and taxpayers, with evident risks for the balance of the social security system, especially in the presence of per se high levels of social security spending.