Keywords: pension system sustainability, Lee?Carter model, mortality, life expectancy, demographic projections, demographics, pension expenditure, pay as you go pension systems, PAYG, population ageing, Slovenia, population longevity, public pensions
Testing the sustainability of the Slovenian (PAYG) pension system using the Lee?Carter method
Assumptions about the future development of people?s longevity have a crucial impact on the long-term sustainability of the public pension system. The use of standard methods to estimate longevity has led to systematically underestimates of increase in longevity. We use the Lee?Carter (LC) model to forecast demographics projections for the Slovenian population which leads to results much closer to the actual development of mortality. The assumptions about people?s longevity made in the latest Eurostat projections from 2008 more closely resemble the results of the LC model than earlier versions of its population projections. However, they still project somewhat lower increases in longevity than our results using LC model. This translates to about 0.9 percentage points higher public pension expenditure in 2060 if we use our results about mortality development in the future instead of the Eurostat assumptions.