Assessing the economic and budgetary impact of linking retirement ages and pension benefits to increases in longevity

This paper focuses on potential public pension expenditure, pension adequacy and fiscal sustainability effects when linking retirement ages and pension benefits with future increases in longevity. Simulation results show that the expected increases in public pension expenditures as a share of GDP could almost be halved, when fully linking retirement ages to life expectancy gains in the future. The expected decrease in the benefit ratio due to recent pension reforms could be diminished. Even higher reductions in future pension spending would materialize with a rule that links pension benefits to longevity gains without adapting statutory retirement ages. However, if people do not extend their working lives in order to maintain the level of pension benefits, serious adequacy problems may arise. To fully stabilize public pension expenditures, further reform measures on top of a retirement age or pension benefit link to gains in life expectancy need to be considered in most Member States.