Brief analysis 8: Baby boomers retiring – 19 billion euros in additional expenditure by 2030

By 2080, 9.9 million people will live in Austria. The old-age dependency ratio, i.e. the proportion of over-65s in the 15-64 age group, will rise from 28.1% today to 44.1% by 2040 and to 51.6% by 2080. In addition, life expectancy will rise to well over 90 years in the same period. "The number of pensioners and the length of time they receive a pension will increase in the coming years. This is associated with a significant increase in expenditure in the pension system. As this increase in expenditure is not matched by a corresponding increase in income, the Austrian pension system must be described as unsustainable," says Tobias Thomas, Director of the economic research institute EcoAustria.

But you don't have to wait 60, 40 or 20 years for a real stress test. "The stress test for the Austrian pension system is already just around the corner. The first baby boomers, i.e. the baby boomers of the 1960s, have already retired," says Thomas. Today, 93,237 people are 65 years old, the statutory retirement age for men. However, the actual retirement age in Austria is 59.6 years. This means that 117,265 people are currently 60 years old. The increase in the cohort figures is accompanied by an increase in new entrants to the pension system. In 2018, 92,203 people retired or became disabled. "Over the next 10 years, the baby boomers will increase the number of new entrants to old-age and disability pensions to well over 100,000 per year. Added to this are the civil servant pensions," explains Thomas. The entry of baby boomers into the pension system means that expenditure will increase every year. Calculations using EcoAustria's generation account model Debt Check show that expenditure will rise from 14.1 percent of GDP today to 15.3 percent by 2030. "Over the next 10 years, pension expenditure will increase cumulatively by around 19 billion euros," explains Thomas.

In order to respond to rising expenditure in the pension system, the benefit level of the pension system could be further reduced beyond the level already agreed. However, this would mean a further deterioration in financial security in old age. Alternatively, contributions or the federal subsidy could be increased through tax or debt financing. However, this would be associated with an increasing tax or debt burden. Another option would be to gradually raise the statutory retirement age from 65 today to 67 in 2060. Raising the retirement age beyond this could also guarantee a higher level of pensions in the long term, according to a brief analysis published today by EcoAustria.