The 2003 aging vulnerability index: an assessment of the capacity of twelve developed countries to meet the aging challenge

Document assesses the “vulnerability” of the developed countries to rising old-age dependency costs. In this first edition, the Index covers twelve countries - Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom, and the United States.

The Index gives each country an overall ranking and score. The scores show that the twelve countries fall into three clear groups:

Low vulnerability:

• Australia
• United Kingdom
• United States

Medium vulnerability:

• Canada
• Sweden
• Japan
• Germany

and a high vulnerability group:

• France
• Italy
• Spain

Report concludes that the English speaking countries win the first three places thanks to their favorable demographics, their relatively inexpensive public benefit systems, and their well-developed private alternatives. The group does face some real challenges. The UK, for example, is finding it difficult to keep costs down without hurting elder living standards, while the United States must grapple with runaway health care spending. Still, all of these countries are in relatively good shape. Australia, in particular, is implementing a farsighted strategy of mandatory private pension coverage that promises excellent results on all fronts.

All of the medium vulnerability countries, including Canada, face more serious demographic challenges than the low vulnerability countries. Despite recent reforms, all, including Sweden and Germany, face heavier old-age dependency burdens.

The high vulnerability group includes three major continental European countries that all face a daunting fiscal and economic future. Their poor scores can be attributed, in varying degrees, to severe demographics, lavish benefit formulas, early retirement, and heavy elder dependence on pay-as-you-go public support. It is unclear whether they can change course without economic and social turmoil. Italy has scheduled big reductions in future pension benefits, but only after grandfathering nearly everyone old enough to vote. France and Spain have yet to initiate major reforms of elder benefit programmes.

The projections underlying the Index are based on a “historical trends” scenario, a no-wishfulthinking baseline that assumes a continuation of established demographic and economic trends.

According to the projections, public benefits to the elderly will reach an average of 25 percent of GDP in the developed countries by 2040, double today’s level. In Japan, they will reach 27 percent of GDP; in France, they will reach 29 percent; and in Italy and Spain, they will exceed 30 percent. This growth will throw into question the sustainability of today’s retirement systems - and indeed, society’s very ability to provide a decent standard of living for the old without overburdening the young. [adapted from authors]