A pension is a promise between a worker and the government; in a pay-as-you-go system, it is also a claim on the younger population. Today’s contributions largely finance today’s retirees. The worker earns a legal entitlement, but the future check will be funded from the production and taxes of a generation that may be much smaller.
The arrangement was easier when each retirement cohort was followed by a larger working cohort. Low fertility reverses the ratio. Across the OECD, average public pension spending is projected to increase from 8.8 percent of GDP in 2023–2024 to 10 percent in 2050, even after reforms already written into law.
The deeper problem is that one generation made promises under assumptions about the size of the generations behind it that no longer hold. Closing the gap means collecting more from workers, changing what retirees receive, working longer, or producing enough additional wealth to make the arithmetic easier.
Who carries the promise
Pension reform is difficult because the time horizons are mismatched. Older voters planned around existing rules and have little time to adjust, while younger taxpayers can see a larger contribution deducted now for a benefit they are less certain to receive. Both grievances are real.
Gradual reform can spread the adjustment. Retirement ages can track part of the gain in healthy life expectancy, while benefits can be protected more strongly for people with low lifetime earnings. Older people also raised the taxpayers who follow them and built much of the capital those taxpayers use. The problem is not a moral debt owed in only one direction. It is a formula that eventually fails if transfers keep growing while the base financing them shrinks.
That burden lands during the same years in which younger adults are trying to buy homes and raise children. Higher taxes or unpaid care can reduce the money and time available for family formation. Low fertility can therefore worsen the fiscal burden in ways that make another generation of low fertility easier to imagine.
Care is harder to finance than a check
A pension can be transferred electronically. Help with bathing or eating requires someone to show up.
Someone has to show up, New Delhi, 2025 A home-care worker with an older patient. Public and private provision divide payment; they do not eliminate the work of being there. via Wikimedia Commons
OECD long-term-care spending almost doubled as a share of GDP between 2000 and 2022. The European Commission’s baseline projects public long-term-care spending in the European Union rising from 1.7 percent of GDP in 2022 to 2.4 percent in 2070.
Those figures are not fate. In the Commission’s less favorable scenario, in which additional years of life bring more dependency, spending reaches 2.7 percent instead. Healthier aging removes about a third of that increase. A demographic projection is partly a projection about health, work, policy, and the design of care, not only the number of birthdays.
Public and private provision divide payment, but they do not eliminate the work. If the state does not finance a home-care worker, an adult daughter may reduce her paid hours instead. A fiscal reform that pushes care back into a thinner family can make the accounts look better while making life worse.
The OECD reports that the care workforce in many countries has not kept pace with aging. Governments may have enough money appropriated and still lack the person who can show up Tuesday morning.
Debt moves the burden forward
Borrowing can spread a temporary demographic shock. A permanent imbalance returns later as debt service, adding another claim on the future tax base. A growing economy can shrink old debts relative to income. A slowly growing or contracting one has less room.
Fiscal policy therefore becomes an argument about inheritance: older citizens are owed security, younger citizens need room to build households without having more of their working lives pledged away, and future citizens cannot vote even though they receive the debt and age structure left behind.
There is more than one defensible way to divide the adjustment. Raising a retirement age, changing benefits, broadening taxes, borrowing, supporting family caregivers, and expanding formal care place the cost on different people at different times. A humane government should protect people who cannot protect themselves and be wary of financing present comfort by reducing the capacity of the generation that follows. Otherwise the fiscal response to low fertility can help reproduce the conditions that caused it.
Citations
- Organisation for Economic Co-operation and Development, “Long-term projections of public pension expenditure”, in Pensions at a Glance 2025, 2025.
- Organisation for Economic Co-operation and Development, Ageing Populations: Their Fiscal Implications and Policy Responses, 2025.
- European Commission, 2024 Ageing Report: Economic and Budgetary Projections for the EU Member States (2022–2070), 2024.
- Organisation for Economic Co-operation and Development, “Demographic trends”, in Health at a Glance 2025, 2025.