Pensions, so the exit of baby-boomers from work spending will rise until 2041

The average annual rate of expenditure on cash social benefits in the 2019-2025 period is 4% and is expected to remain at around 3.8% on average per year even if the observation period is extended to 2026-2027, maintaining for a broad time horizon a dynamic that is almost double that recorded in the 2010-2018 period (2%) and in any case higher than the average annual growth rate of nominal GDP. In 2029, total social cash benefits are expected to stand at EUR 510.9 billion, or 20.5% of GDP.

In the years from 2019 to 2022, the pension expenditure-to-GDP ratio follows a seesaw pattern: it rises rapidly, reaching 16.9% in 2020, then declines in the following two years, before rising again. Expenditure as a ratio of GDP increases significantly due to the sharp contraction in output levels caused by the effects of the initial and most acute phase of the Covid emergency, which are recovered in 2021-2022.

The two-year period 2023-2024 is affected by the high level of pension indexation (due to the sharp increase in the inflation rate from the end of 2021 to 2023), expenditure as a ratio of GDP increases to 15.3 per cent at the end of the two-year period. This trend is also conditioned by the application of Quota 100 (access to pensions with 62 years of age and 38 years of contributions) and of the measures to encourage early retirement, which determine, for the years 2019-2021, a substantial increase in the number of pensions in relation to the number of employed persons and the continuation, at the financial level, of the onerous effects associated with early retirement.

The growth of the ratio of pension expenditure to GDP is expected to accelerate to 17.1% in 2041, a level at which it is expected to remain for the next three years. This dynamic, reads the Dfp, is due to the increase in the ratio of the number of pensions to the number of employed people induced by the demographic transition, due to the baby boom generations entering retirement, only partially offset by the increase in the minimum requirements for access to retirement and by the effect of the containment of pension amounts exerted by the gradual application of the contribution-based calculation system over the entire working life.

From 2045 onwards, the ratio of pension expenditure to GDP is projected to decrease, first gradually and then rapidly, to 16.2% in 2050. In the last decade of the forecast, the ratio of expenditure to GDP declines slightly, before converging to 14% in 2070.

The rapid reduction in the last phase of the forecast period according to the Dfp is determined not only by the generalised application of the contribution-based calculation (with the related updating of the transformation coefficients), but also by the stabilisation, and subsequent reversal, of the ratio between the number of pensions and the number of employed persons. This trend is affected by the gradual exit of the baby boom generations, and by the effects of the automatic adjustment of minimum retirement requirements to life expectancy.