Starting in 2001, the European Union (EU) has published periodically long-term projections of aging-related public expenditures expected to be incurred by the governments of its member countries. The latest iteration of this report, published in April, confirms again that the developed world is in undergoing a dramatic demographic transformation that will continue unfold over several more decades and will require significant and ongoing programmatic adjustments.

The EU projections are based on data submissions from its member states along with unified modeling conducted by the European Commission (EC). The focus is on budgetary pressures associated with population aging, specifically with respect to publicly sponsored old-age pensions, health and long-term care expenses, and educational costs. Member countries model their old age pension programs separately and submit additional data that allows for a consistent forecast for the other relevant portions of the EU forecast.

The starting point for the EU’s projections is an estimate of the population profile of each country over the next half century, ending in 2070. Figure 1 provides an overview of the report’s demographic forecast for the EU as a whole, for several of its larger member states, and also for the US (using data from the latest Social Security trustees’ report).

As shown, the EU is expected to experience an absolute population decline of 3.8 percent, from 449.1 million in 2022 to 431.9 million in 2070. Among the larger EU countries, France and Germany are projected to see modest population gains (of 2.5 and 0.4 percent, respectively) while Italy’s population will decline by 9.7 percent. In contrast, the US population is estimated by the Social Security trustees to grow by 22.7 percent over the same period.

Figure 1. Total Population (millions)

The most important variable determining these long-term population trends is the birth rate. Across all of its member states, the EU expects the total fertility rate (TFR) to rise from 1.50 in 2022 to 1.62 in 2070. The Social Security trustees are more optimistic for the US, with their intermediate projections showing the TFR rising from 1.66 in 2022 to 1.90 in 2036, where it is then held constant throughout the remainder of the projection period. If the US TFR were to stagnate and not rise, the adverse effect on Social Security’s financial outlook would be significant.

Figure 2. Age Composition Percentages

These assumptions produce diverging estimates of population shares over time, as shown in Figure 2. In the EU, the working-age population (those aged 20 to 64) is expected to fall from 58.6 percent of the total in 2022 to 51.6 percent in 2070. For the US, the drop is less severe, from 58.1 percent to 53.8 percent. The differing expectations for the ratios of the elderly (those aged 65 and older) to the total population are even more dramatic. For the EU, the share is expected to rise to over 30 percent by 2070 while in the US it goes up to only 23.2 percent. For Italy, the share of the total population that is age 65 and older is expected to rise from 23.9 percent in 2022 to 33.7 percent in 2070.

A notable finding in the EU study is that this unprecedented demographic shift is not projected to overwhelm its members’ public budgets, largely because many of the affected governments have spent the past three decades preparing for the transition with substantial reforms, especially with respect to their old age pensions. As shown in Figure 3, the EU projects the aggregate effects of aging to increase the budgetary costs for its member governments by only 1.2 percentage points of GDP.

A major factor in this relatively benign forecast is the minimal increase in spending associated with old-age pensions. In the EU projections, public spending on pensions will be 11.8 percent of GDP in 2070, or just 0.4 percentage points above what it was in 2022. For Italy, the relevant figure is 13.7 percent of GDP, which is well below the 15.6 percent of GDP spent in 2022. This drop is associated with reforms passed in recent decades that the EU says will lower the average replacement rate (relative to average earnings) from 45.0 percent in 2022 to 38.2 percent in 2070. Spain is an outlier in this regard, with spending on pensions expected to rise from 13.1 percent of GDP in 2022 to 16.7 percent in 2070.

Figure 3. Public Age-Related Spending (Percent of GDP)

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