Demographic and economic assumptions for pension schemes

Demographic and economic assumptions used in actuarial valuations of social security and pension schemes Finland, France, Italy, Japan, Qua©beck, Sweden, Switzerland, United Kingdom, United States Francis Ballooner Actuary Charles Cassette and Gilbert Eyelet Economist The Quebec Pensions Board Canada Technical Commission on Statistical, Actuarial and Financial Studies World Social Security Forum, Moscow, 10-15 September 2007 The International Social Security Association (ASSAI) is the world’s leading international organization bringing together national social security administrations and agencies.

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First published 2007. International Social Security Association, 2008. Summary In the decades to come, Quebec, like most industrialized countries, will experience an ageing of the population, caused by a drop in birth rates and a rise in life expectancy. Population dynamics such as these will have a significant impact on the characteristics of the economically active population and on the future income and disbursements of the public pension plan. During the preparation of the Actuarial Report of the Quebec Pension Plan as at 31

December 2006, actuaries at the Quebec Pensions Board carried out a study comparing assumptions and projections used for the Qua©beck scheme with those of social security schemes in eight countries. For purposes of a comparative analysis, the Regime conducted a survey, which was supported by the International Social Security Association. Persons responsible for the actuarial valuation of social security schemes of these countries (United States, Finland, France, Italy, Japan, United Kingdom, Sweden and Switzerland) filled out a questionnaire entitled “Ageing

Population and Impact on the Labor Force”. The comparison is based on the information that they provided. This report contains a summary of the data collected in the survey and a comparative analysis of national projections. It is divided into two chapters. The first chapter discusses future demographic changes in the countries studied. The second presents a comparison of the projections from various countries regarding the economically active population, participation in the labor force (particularly among those age 55 and over) and other economic variables. . Demographic projections The first chapter provides details about the projected demographic environment of each country studied. A comparison is first established on the basis of three factors that determine population changes: total fertility rate, net migration and life expectancy. We then explain the effect of the demographic projections on future population distribution according to age, particularly the working-age population.

The Quebec Pensions Board extends it thanks to the representatives of the social security schemes of the countries that responded to its survey for their valuable operation, namely Alice Wade, Deputy Chief Actuary, Social Security Administration, United States; Their Llama, Actuary, KEEL (Social Insurance Institution), Finland; Much©lee Tourney, Actuarial and Statistics Service Director, National Old-age Insurance Fund tort Employees, France; Guerrilla Rambled, Actuary, National Social Insurance Institute, Italy; History Yummier, Director, Office of Administration on Actuarial Coordination, Pension Bureau, Ministry of Health, Labor and Welfare, Japan; James Thompson, Actuary, Social Security, Government Actuary’s Department, United Kingdom; Nils Hologram and Lena Lindquist, Researchers, F¶RSI¤crankiness (Swedish Social Insurance Agency), Sweden, and Laurence Capron, Scientific Contributor, Federal Social Insurance Office, Switzerland. Francis Ballooner, Charles Cassette and Gilbert Eyelet 2 1. 1. Total fertility rate Fertility, like immigration, is a factor that contributes to the growth of a country’s population. It has a bearing on the influx of new workers within an approximately 20- year span. The number of new contributors is an important parameter to the funding of most social security schemes. Figure 1 .

Total fertility rate projections, 2005-2030 Japan United Kingdom Quebec Finland France Sweden Switzerland Italy United States 2005 2010 2020 2030 Note: Data for Finland and France are the same. In the countries studied in which birth rates are the currently the lowest (between 1. 25 and 1. 42 children per woman), that is, Japan, Switzerland, and Italy, rates are expected to remain low in the future, for example, around 1. 4 in 2030. A second group made up of France, Finland, the United Kingdom and Sweden expects to maintain fertility rates around 1. 8 children per woman. Qua©beck is between these two groups, with an increase in the fertility rate to 1. 6 by 2020. These findings are illustrated in Figure 1 .

The United States can be seen at the upper limit of the graph with a fertility rate of 2. 0. In all of the countries studied, the projected total fertility rate is lower than the level required to renew the population, that is, 2. 1 children per woman. In 2030, the total fertility rate will vary between 1. 4 et 2. 0. In the absence of positive net migration, the population of several countries will decline over the next century. In the shorter term, the working-age population will decline once the number of retirees surpasses the influx of new workers. 3 1. 2. Net migration A positive net migration generally means an almost immediate influx of new workers, considering the age at which immigrants arrive in a new country.

The actual effect on a plan’s funding obviously varies according to the level of migration but also on the distribution of migrants according to age. The level of immigration and its composition depend on public policies related to immigration. Net migration expressed as a percentage of the population varies significantly from country to country. 2 The net migration of most countries is relatively small and the projected levels of migration are not sufficient to offset the anticipated low fertility rates. Figure 2. Projected net migration as a percentage of the population, 2005-2030 on 03 For example, net migration in France currently represents of the population, compared with 0,52 % in Switzerland.

Most countries, with the exception of Switzerland, anticipate very small changes in net migration as a percentage of the population. In Switzerland, however, migration is expected to decline to of the population in 2030. In contrast, Italy anticipates a slight increase in the level of immigration. 1. 3. Life expectancy Life expectancy is an important demographic factor, in terms of a publicly-funded pension plan. The longer the life expectancy, the higher the costs associated with cash outflows, since the plan will be paying pension benefits over a longer period of time. Future changes in life Projected net migration in Japan is not available. 4 expectancy, however, are subject to several doctors. It is therefore difficult to make long-term projections.