Demographic Pressure on the Public Pension System

The combination of low fertility, decreasing mortality and the baby-boom generation entering retirement will dramatically increase the share of elderly people in Slovenia in future decades. Without further changes in the pension system this will bring about strong pressure on the public pension system. In the analysis we use a cohort-based model to project the share of public expenditure on pensions in gross domestic product. This model enables us to analyse the long-term effects of the forthcoming demographic changes in connection with the current public pension system. The projected rise in pension expenditure will have to be mitigated at some point in the future and reducing pension benefits is one of the options. The Slovenian pension legislation provides equity among pensioners who retire at different points in time. An equal reduction of pension benefits suggests an equal distribution of burdens arising from the ageing population. However, the model reveals very different effects of this measure in relation to different cohorts. The analysis tackles increasingly relevant topics of intergenerational relations and questions the distribution of fiscal burdens and benefit among cohorts and generations.