The Countries Where Old Age Costs The Most

One of the most significant financial problems that countries will face in the coming decades is the amount they will spend to support the elderly. This will be exacerbated by increased debt-to-GDP ratios in most of the 49 countries where old age costs will be the highest percentage of GDP, according to the Standard & Poor’s Global Aging Report. Of the 49 countries, 32 are members of the Organization for Economic Co-operation and Development, and 17 are large, emerging market nations.

The Standard & Poor’s Global Aging report emphasizes: “No other force is likely to shape the future of national economic health, public finances, and policy making as the irreversible rate at which the world’s population is aging. The problem has been long observed and is well understood.” The analysis adds, “U.N. figures show the proportion of the world’s population aged over 65 is set to more than double by 2050, to 16.2% from 7.6% currently.”

“The elderly” refers to people who are over 65. These people are, for the most part, retired and not working. The eventual burden of supporting them will become impossible to sustain in some countries, and in many it nearly is already.

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These huge debt loads of many countries have risen as nations have spent far more than their tax receipts, and the trouble can no longer be remedied by GDP growth as it often was in the latter half of the 20th Century. Few developed nations have rapid enough GDP growth to decrease deficits and bring down national debt. That leaves higher taxes and spending cuts as the only means to close budget gaps.

Care for the elderly the US is at the core of entitlement reform. Projections by the Congressional Budget Office and think tanks show that Social Security and Medicare costs will be overwhelming in a few decades. Defense cuts and reductions in discretionary federal government spending will not be enough to offset the cost of entitlement programs, which are growing more quickly than other government expenses. According to Standard and Poor’s, the United States will undergo a greater increase in health care spending for the elderly than any other developed nation. The battle over entitlement reforms has begun already. People who are in their prime working years face the possibility that the payments they receive from Social Security will be less than those their parents received or are receiving.

The analysis of the problem takes into account: (1) the amount spent as a percentage of GDP on health care for elderly, (2) pension spending, (3) unemployment benefits for the elderly, and (4) long-term care. Health care and long-term care are primarily medical costs. Pension costs, which include early retirement and disability pensions, cover primarily the expenses of daily living. Unemployment costs cover the elderly who do not have pensions or other means of independent financial support.

Each country’s burden is based on current GDP growth and for the next four decades, net government debt, debt as a percentage of GDP, and the S&P sovereign credit rating of the 49 countries.

24/7 Wall St. chose the ten nations which currently spend the most on care for the elderly as a percentage of GDP. Most of these counties face a grim financial future as the number of old people grows more quickly than their country’s GDP. This gap will be a primary driver of increases in national deficits, which in turn will drive national debt higher.

There have been no acceptable solutions suggested for these problems. All of citizens of nations on this list refuse to have their retirement benefits lowered. The issues can be deferred, but the process that will increase costs will eventually push indebted nations to the point where sovereign borrowing will become unsustainable. Then, like Greece, many of the nations analyzed here will face years of austerity forced on them by creditors.

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10. Greece
> Age-Related Spending As a % of GDP: 18.6%
> Spending on Pensions for Elderly (% of GDP): 10.2% (13th Highest)
> Spending on Health Care for Elderly (% of GDP): 5.2% (24th Highest)
> Sovereign Debt Rating: BB+
> Net Debt as % of GDP: 122.2% (Highest)

The Greek sovereign debt crisis was caused by  overspending on things like care for the elderly and a low GDP as a percentage of net debt. According to Standard & Poor’s, these factors will only get worse. Greek GDP growth is negative 4% – the worst among the 49 developed and emerging economies in the report. Currently, Greece spends the tenth-most among developing countries on the elderly at 18.6% of its GDP, including 11% on pensions. By 2030, its rank is expected to increase to fourth, and by 2050, S&P forecasts Greece will move into the lead, spending more than 36% of its GDP on benefits for the elderly. This represents an increase of nearly 100% in forty years.

9. Japan
> Age-Related Spending As a % of GDP: 18.8%
> Spending on Pensions for Elderly (% of GDP): 10.3% (11th Highest)
> Spending on Health Care for Elderly (% of GDP): 6.9% (10th Highest)
> Sovereign Debt Rating: AA
> Net Debt as % of GDP: 105.5% (3rd Highest)

Japan’s greatest cost incurred from the elderly is pensions, which make up 10.3% of GDP.  Pension costs will be passed by health care costs as the leading expenditure by 2050.   At that point, they will account for 11% of GDP and health care costs will account for 12.8%, up from 2010’s 6.9%.  This is an  increase in health care spending of 125%. Japan is also facing the dangers of a growing debt load as its population ages.  As of 2010, the country’s debt was 105.5% of GDP, the third highest rate in the world.  S&P projects that this rate will increase to 183.2% by 2020, making it the highest among all the countries. Without any changes to policy, Japan’s debt will grow to a staggering 753.1% of GDP by 2050.

8. Finland
> Age-Related Spending As a % of GDP: 19.5%
> Spending on Pensions for Elderly (% of GDP): 10.7% (9th Highest)
> Spending on Health Care for Elderly (% of GDP): 5.9% (21st Highest)
> Sovereign Debt Rating: AAA
> Net Debt as % of GDP: Net Budget Surplus of 40.1% of GDP

Finland is the only country on our list with a budget surplus. The Scandinavian nation has a net surplus of more than 40% of its GDP, a value that is only expected to increase over the next 40 years. Over that same time period, old-age spending in Finland is expected to increase care for the elderly from 19.5% to 28.8% of GDP. More than half of this spending comes from pensions. In addition, Finland is forecast to spend 1% of its GDP on unemployment benefits for the elderly, the second highest rate.

7. Germany
> Age-Related Spending As a % of GDP: 20%
> Spending on Pensions for Elderly (% of GDP): 10.2% (13th Highest)
> Spending on Health Care for Elderly (% of GDP): 7.9% (5th Highest)
> Sovereign Debt Rating: AAA
> Net Debt as % of GDP: 75.2% (11th Highest)

Germany spends the seventh most, as a percentage of GDP, on its older population, among the 49 countries analyzed.  It is also the first nation on our list to spend 20% or more of its GDP in this way.  Germany’s ranking increases to fifth when it comes to the amount spent on health care in 2010, on which it spent 7.9% of GDP.  If policies go unchanged, Germany will spend 14.4% of its GDP on health care for the elderly by 2050, which would be the third greatest amount. The country’s current ranking falls to 13th place, however, where the country is currently spending the most — pensions.

6. Portugal
> Age-Related Spending As a % of GDP: 20.8%
> Spending on Pensions for Elderly (% of GDP): 11.9% (5th Highest)
> Spending on Health Care for Elderly (% of GDP): 7.7% (7th Highest)
> Sovereign Debt Rating: A-
> Net Debt as % of GDP: 80.3% (7th Highest)

Besides Greece, Portugal has arguably received the most attention for its sovereign debt problems and weak GDP growth. Currently, the country has the 7th highest level of debt as a percentage of GDP, and has generally negative debt ratings. The country spends 15% of its GDP on pensions, the fifth most among these 49 countries. That value is expected to fall to 14%, dropping the country to 14th in this rank. Greece is also forecast to move from sixth to fourteenth overall in old-age spending, along with nations like Spain, the Netherlands, and Ukraine which are expected to have large increases in costs.

5. Austria
> Age-Related Spending As a % of GDP: 21.5%
> Spending on Pensions for Elderly (% of GDP): 12.7% (4th Highest)
> Spending on Health Care for Elderly (% of GDP): 6.9% (11th Highest)
> Sovereign Debt Rating: AAA
> Net Debt as % of GDP: 71.8% (12th Highest)

Austria’s current ranking is fifth, with the country spending 21.5% of GDP on its elderly.  That amount is expected to increase to 23.5% by 2020, however, raising the country to fourth place.  The greatest area of expenditure for Austria is pensions, where the country is spending 12.7% of its GDP, the fourth greatest amount of all the countries on this list.  Austria’s projected increase in spending, 37.7%, is not as severe as many other countries, however, as it is only the 38th highest rate among the countries reviewed.

4. Sweden
> Age-Related Spending As a % of GDP: 21.6%
> Spending on Pensions for Elderly (% of GDP): 9.6% (15th Highest)
> Spending on Health Care for Elderly (% of GDP): 7.6% (8th Highest)
> Sovereign Debt Rating: AAA
> Net Debt as % of GDP: 18.7% (36th Highest)

Sweden spends more on long-term care than any other nation, at 3.5% of its GDP. That value is expected to nearly double over the next 40 years to 5.3%. The relative fiscal health of the nation – as indicated by AAA sovereign credit rating and stable current and forecast GDP growth – should allow the welfare state to maintain the current levels of spending while experiencing the fourth-lowest increase overall.

3. Belgium
> Age-Related Spending As a % of GDP: 21.8%
> Spending on Pensions for Elderly (% of GDP): 10.3% (12th Highest)
> Spending on Health Care for Elderly (% of GDP): 8.1% (3rd Highest)
> Sovereign Debt Rating: AA+
> Net Debt as % of GDP: 94.3% (6th highest)

Belgium spends the third greatest percentage of its GDP of all the countries on this list on total elderly care.  It spends the most out of any country on unemployment, however, with 1.9% of GDP.  According to S&P forecasts, if Belgium continues its current policies it will rise to second place for rate of spending on the elderly with regards to GDP through 2040.  The country has had a difficult time working on economic solutions, as there has been high, ongoing tension between the country’s French-speaking southern population and Dutch-speaking northern population.

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2. Italy
> Age-Related Spending As a % of GDP: 22.4%
> Spending on Pensions for Elderly (% of GDP): 14% (Highest)
> Spending on Health Care for Elderly (% of GDP): 6.3% (15th Highest)
> Sovereign Debt Rating: A+
> Net Debt as % of GDP: 114.6 (2nd highest)

Relative to other countries on this list with high debt and low GDP growth, like Portugal and Greece, Italy is forecast to improve its fiscal situation over the next 40 years. S&P projects 38 developed or emerging economies will have higher debts as a percentage of GDP than Italy. Today, however, the country’s debt as a percentage of GDP is forecast to increase to 245% of its GDP by 2050. Part of the reason for this is a 28.6% increase in overall old age spending, including a 74% increase in health care spending. Currently, the country spends 14% of its GDP on pensions, more than any developed or emerging economy in the world.

1. France
> Age-Related Spending As a % of GDP: 24.9%
> Spending on Pensions for Elderly (% of GDP): 13.5% (2nd Highest)
> Spending on Health Care for Elderly (% of GDP): 8.7% (Highest)
> Sovereign Debt Rating: AAA
> Net Debt as % of GDP: 77.9% (8th highest)

France takes the top spot on this list by a significant amount, spending just under a quarter of its GDP on the elderly in 2010.  The country also spends the greatest percentage of GDP on health care for the elderly, 8.7%, and the second greatest percentage on pensions, 13.5%, just behind Italy’s 14%.   Recently,  France initiated structural reforms to social security to try to rein in spending.  But, more must be done if the country wishes to prevent further expansion of its debt.  With current policies in place, the debt as a percentage of GDP will increase by 418% by 2050.

Michael A. Sauter, Charles B. Stockdale, Douglas A. McIntyre