Pensions under Ageing Populations and the EU Stability and Growth Pact

Abstract

This article explores how the Stability and Growth Pact (SGP) may cope with the future costs of population ageing in the European Union. Clearly, population ageing has forced countries to reform their pension systems, and will continue to do so, both by reducing the generosity of pension arrangements and by switching to funding rather than relying on pure pay-as-you go pension provision. We study how such reforms affect the room for adhering to the SGP, but also how the SGP may induce or hamper the incentives for reform. We will refer to recent literature on ageing and pensions and on the SGP. We also calibrate a simple model for addressing intergenerational equity and discuss its implications for the SGP. (JEL codes: H11, H55, H60)