The UK is one of the European countries that is most exposed to fiscal risk due to the pension and health pledges to its ageing population, according to statistics released by Maplecroft.
The mapping firm’s Fiscal Risk Index – a ranking of 163 countries – showed that the UK, France, Germany, Italy,and Sweden will come under increasing economic pressure due to their ageing populations, low birth rates substantial levels of debt and high public spending on health and pensions.
The index is calculated using eight indicators: child and old-age dependency ratios between 2010 and 2050; labour rates of the over-65s; gross domestic product; debt; and public spending on pensions, health and education.
Europe is home to 11 out of the twelve countries rated ‘extreme risk.’ These are: Italy, Belgium, France, Sweden, Germany, Hungary, Denmark, Austria, United Kingdom, Finland, Greece and Japan.
The ‘extreme risk’ countries are characterised by increasingly ageing populations and high public spending on social security. High life expectancy will place more pressure on public expenditure because pensions will need to be paid to more people for longer and an older populace will place larger burdens on health systems. At the same time, the working-age population in these countries is shrinking; so contributions to public pensions are likely to decrease.
In the UK, there are currently 25 old people for every 100 of working age (25%). This is forecast to rise to 38% by 2050. Although high, the UK projection is lower then other ‘extreme risk’ countries, including: France 47%, Germany 59%, Italy 62% and Japan 74%.
Siobhan Tuohy, an analyst at Maplecroft, said: “Fiscal sustainability is commonly seen as being the government’s responsibility to prudently manage public income and expenditure, ensuring it can honour future payments. However, in high risk countries, it is increasingly likely the private sector will be called upon to contribute in the form of pensions and private healthcare. This could prove vital in preserving productivity in an ageing workforce and reducing government liabilities in the future.”
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