Easing the burden on pension systems by investing in health

Life expectancy at birth has almost doubled in the last century: in 1900, the average life expectancy in OECD countries was 45 years, but by 2019, it had risen to 81 years¹ . This increase is resulting in a higher proportion of elderly people in the population. In France, for example, 21% of the population has reached the age of 65. In the European Union in 2018, almost one in two people over that age reported having a sensory, physical or mental disability or impairment. As the population ages, the need for long-term care increases, in particular due to the rise of chronic illnesses, leading to significant costs and considerable financial pressure on pension systems.  In 2017, on average, 1.5% of the OECD countries gross domestic product (GDP) was spent on long-term care², and health and social care services provided to dependent people requiring ongoing care accounted for 60% of healthcare expenditure in 2021³.

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Dialogues économiques is a digital journal published by the Aix-Marseille School of Economics (AMU, CNRS, EHESS, Centrale Méditerranée). A gateway between academic research and society, Dialogues économiques provides all citizens with the keys to economic reasoning. Articles are published every two weeks.

Different pension models

Public health and pension systems - in particular pay-as-you-go pension systems - are facing major challenges in addressing the growing needs of an aging population while ensuring their well-being and quality of life. In a pay-as-you-go pension system, part of the salary of working people finances a pension fund, used immediately to support current retirees. However, this system is being undermined by the inversion of the age pyramid, and the increase in the ratio of retired people to working people.

Governments have developed solutions to curb the additional costs associated with an ageing population. In France, which has a pay-as-you-go pension system, the government is seeking to raise the retirement age, a policy that has faced widespread public opposition. In the UK, workers are encouraged to contract private supplementary pensions. In the United States, the system is contributory and primarily offered through employer-sponsored plans. Under this system, workers contribute a fraction of their income, which is later paid out as annuities upon retirement.