PensionReforms' summary and comments
The report looks forward to 2060, projecting the impact of the ageing EU population on a number of key economic indicators.  None is other than 'as expected' but together they paint a potentially worrying picture:
"Demographic change is transforming the EU: longer lives, low fertility and inward migration are its key aspects.  The extent and speed of population ageing depend on future trends in these three factors.  Demographic factors are subject to less variation than economic factors over the short run, however they have exhibited much less stability over the medium term of say, 25 years."

The total fertility rate across the EU is expected to improve slightly from 1.52 births per woman in 2008 to 1.57 by 2030 and 1.64 by 2060 though some are presently "...above 1.8, namely France, Ireland, Sweden, Denmark, the UK and Finland".

Life expectancy is expected to continue increasing:
"For the EU as a whole, life expectancy at birth for men would increase by 8.5 years over the projection period, from 76 years in 2008 to 84.5 in 2060.  For women, life expectancy at birth would increase by 6.9 years, from 82.1 in 2008 to 89 in 2060, implying a narrowing gap in life expectancy between men and women."

There is a considerable variation in current mortality across the EU countries that is expected to compress slightly:
"Life expectancy for men in 2008 is lowest in Estonia, Latvia, Lithuania, Hungary, Slovakia, Poland, Bulgaria and Romania, where it ranges between 66 and 71 years."

There will be a similar improvement in mortality from ages about the current State Pension Age:
"Life expectancy at the age of 65 would increase by 5.4 years for men and by 5.2 years for women over the projection period, for the EU as a whole.  In 2060, life expectancy at age 65 would reach 21.8 years for men and 25.1 for women. Most children today would live into their 80s and 90s."

Immigration will continue a significant role in the future make-up of populations, according to the report's assumptions.  Total "...net inflows to the EU are assumed to total 59 million people, of which the bulk (46.2 million) would be concentrated in the euro area."....
"Net migration flows are assumed to be concentrated in a few destination countries: Italy (12 million cumulated to 2060), Spain (11.6 million), Germany (8.2 million), and the UK (7.8 million). According to the assumptions, the change of Spain and Italy from origin to destination countries is confirmed in coming decades. Estonia, Lithuania, Latvia, Poland, Bulgaria and Romania, which are currently experiencing a net outflow, would see it taper off or reverse in the coming decades."

The total population will not change much over the projection period (up from 495.4 million in 2008 to a peak in 2030 of 520.1 m but then falling back to 505.7 m by 2060.  It will, however, be quite a lot older:
"Half of the population today is 40 years-old or more.  In 2060, half of the population will be aged 48 years or above.  The number of elderly persons aged 65 or above already surpasses the number of children (below 15) in 2008, but their numbers are relatively close.  In 2060, there would be more than twice as many elderly than children.  In 2008, there are about three and a half times as many children as very old people (above 80)."

The traditional 'working age population' ("conventionally defined as aged between 15 and 64 years") is expected to drop by 15% over the survey period accompanied by a doubling of the over 65s from 85 million in 2008 to 151 million in 2060.
"As a result of these unprecedented demographic trends, the old-age dependency ratio, calculated as the ratio of people aged 65 or above relative to the working-age population aged 15-64, is projected to more than double in the EU from 25.4% to 53.5% over the projection period.  The largest increase is expected to occur during the period 2015-35, with year-on-year increases above 2 percentage points. This means that the EU would move from having 4 persons of working-age for every person aged over 65 to a ratio of only 2 to 1. When adding the number of children to the calculation, the ratio of dependent to active is projected to rise by nearly 30 percentage points. These population trends underpin future trends in the labour market which are of crucial importance for economic growth. An indicator of the challenges ahead is the ratio of non workers to workers, or the economic dependency ratio."

The report assumes an increase in workforce participation, an increase in labour supply during the next years but reducing after 2020 by as much as 13.6%:
"According to the assumptions, the employment rate (of people aged 15 to 64) in the EU would increase from 65.5% in 2007 to 66.6% in 2010, 69% in 2020, and almost 70% in 2060."

However, "...overall employment in the EU is projected to shrink by about 19 million people over the entire projection period."

The report puts this all together in the context of expected cost implications for pensions:
"For the EU, the projections show an increase in public pension expenditures of 2.4 p.p. [percentage points] of GDP over the period 2007-2060.  For the euro area, a slightly larger increase of 2.8 p.p. of GDP is projected."

However, there is an expected wide variation across the countries that make up the EU:
"Public pension expenditure (social security pensions) is projected to increase by more than 10 p.p. of GDP in 3 Member States (Greece, Cyprus, and Luxembourg).  Spending is expected to grow by between 5 and 10 p.p. of GDP in another five Member States (Ireland, Malta, Spain, Romania, Slovenia).  In most Member States (Belgium, Bulgaria, the Czech Republic, Germany, France, Lithuania, Hungary, the Netherlands, Austria, Portugal, Slovakia, Finland, the UK), the change of the ratio is below 5 p.p.  By contrast, in Denmark, Sweden, Latvia, Italy, and Estonia the ratio either stays at the 2007 level or drops below it. Some countries are projecting a decrease over the entire period of projections (Poland, Estonia, Denmark, Italy and Latvia), although this masks an increase over part of the projection period (such as in the case of Italy)."

Things that are likely to limit the increases include the expected:
"- a tightening of the eligibility for a public pension (through higher retirement age and/or reduced access to early retirement and better control of alternatives to early retirement like disability pensions ...
- higher employment rates are projected as reforms that provide stronger work incentives reduce structural unemployment rates in a number of countries;
- reduced generosity of pensions relative to wages. It is captured at an aggregate level by the pension benefit ratio, i.e. the average pension as a share of the average wage."
 
Some countries have already made structural changes, including a compulsory Tier 2 pension (Bulgaria, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia and Sweden). But the report sounds a warning:
"There are potential policy issues with 'privatizing pensions'. While it reduces explicit public finance liabilities and improves the sustainability of public finances, moving towards an increasing role for private sector pension provision creates new challenges and risks for both pensioners and policy makers.  In particular, the importance of appropriate regulation of private pension funds and of careful surveillance of their performance for securing adequate retirement income becomes a more and more demanding political task, as the current financial and economic crisis has made adamantly clear.  Furthermore, since many occupational and private pensions are to a very large part funded, their contribution to future retirement income will be affected by the crisis. Large losses in equity prices can have strong lasting effects on the future pension benefit."

The report notes that a number of countries have already taken steps to mitigate the likely changes summarised, but some haven't:
"However, a number of countries (Greece, Cyprus, Luxembourg, Malta, Spain, Romania and Slovenia) have made only limited progress so far in reforming their pension systems or are experiencing maturing pension systems and escalating spending.  For them, there is an urgent need for a modernisation of pension systems, to start bending back the curve of long-term costs."

PensionReforms notes that the report's data are much as expected.  The average increase in expected pension spending across the whole area is a relatively modest 2.2% of GDP but, as ever, the devil is in the detail.  Greece, Cyprus and Luxembourg seem to have fewer choices than others but, on the other hand, pension spending seems to have peaked in Denmark, Sweden, Latvia, Italy, and Estonia.  However, pension spending is only part of the ageing story, as the report notes:
"In the EU as a whole and in the euro-area, the cost of ageing is 4 ¾% and 5 ¼% of GDP, respectively, in the period to 2060. The largest increase relates to public pension expenditure, rising by 2 ½ p.p. and 2 ¾ p.p. of GDP in the EU and the euro area, respectively. Health care and long-term care spending is rising by about 1 ½ and 1 p.p. of GDP, respectively, in the EU and the euro area. Finally, education and unemployment benefits are projected to be reduced by ¼ p.p. of GDP."

And then there is the impact of the global economic crisis.  That depends on whether it has a 'lost decade' effect or a permanent shock.  The latter makes permanent pension reductions more likely.  (File size 2.2 MB; 265 pp) 331