Under the current rules, where the retirement age continues to increase in line with rising life expectancy, the fiscal sustainability indicator is estimated at 1.0 per cent of GDP. The analysis compares this baseline with five alternative scenarios, including the 2022 Pension Commission proposal, models with slower increases in the retirement age, and a scenario in which the retirement age is frozen at age 70 from 2040 onward.
The calculations show that both the Pension Commission proposal and a rule that keeps the expected number of years in retirement constant result in fiscal sustainability indicators close to balance. In contrast, public finances deteriorate more under models that maintain retirement as a fixed share of life expectancy. The largest effect is found in the scenario where the retirement age is permanently frozen at 70, reducing the sustainability indicator to -1.35 per cent of GDP and implying a substantial permanent fiscal deficit.
The reason is that a lower retirement age both increases the number of old-age pension recipients and reduces labour force participation. As a result, public expenditure on pensions rises while tax revenues decline due to lower employment. Roughly two-thirds of the deterioration in fiscal sustainability stems from higher public spending, while the remaining third reflects lower revenues.
The results show that the development of the retirement age plays a key role in ensuring fiscal sustainability.