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“Longevity, Working Lives and Public Finances” is “Longevity, Working Lives and Public Finances” is a rigorous, policy-focused analysis exploring whether longer human lifespans can be financially sustainable within a welfare-state framework—specifically Finland’s. The central question is bold and practical: Can extended working lives generate enough tax revenue to offset the increased public spending caused by greater longevity, especially in health and long-term care?
The authors address this by integrating three strands of evidence:
Research on retirement decisions and pension policy
Empirical data on how mortality patterns influence health and long-term-care expenditures
The significant uncertainty and historical errors in mortality projections
They combine these inputs into a highly detailed overlapping-generations (OLG) general equilibrium model, calibrated to Finland’s economy and run across 500 stochastic population projections. This allows them to simulate how different longevity trajectories, retirement behaviors, and policy reforms affect fiscal sustainability over the next century.
🔍 Key Findings
1. Longevity is rising, but with uncertainty
Using stochastic population simulations, the paper demonstrates that life expectancy in Finland could vary significantly—making fiscal planning inherently risky. A 7–8 year rise in adult life expectancy is plausible, with wide uncertainty bands.
2. Longer lifetimes do not automatically extend working lives
Without policy intervention, people tend to retire early even as they live longer. Historical data shows Finland’s retirement age has barely increased despite decades of rising life expectancy.
3. Working lives can lengthen — but only with strong policy action
The model incorporates behavioral findings showing that:
Each +3 years of life expectancy increases working life by only ~6 months naturally.
Linking retirement age to life expectancy (as in many modern pension reforms) significantly boosts working years.
Adjusting disability pension rules is crucial, because disability pathways can undermine retirement-age reforms.
With coordinated policy, average retirement ages could rise by 1–4 years over coming decades.
4. Health and long-term care costs grow mainly with proximity to death, not chronological age
Using Finnish microdata, the authors show:
21–49% of healthcare costs and 27–75% of long-term-care costs are driven by the last years of life.
This means that aging populations do not automatically produce unsustainable cost explosions.
Policies that manage late-life disability and service intensity matter more than raw population aging.
This finding dramatically weakens the “aging → inevitable skyrocketing costs” assumption.
5. Fiscal sustainability depends almost entirely on whether working lives increase
The OLG model yields striking results:
If working lives do NOT lengthen, sustainability gaps grow significantly. Taxes would need to rise by 3–5 percentage points of GDP, even with proximity-to-death modeling.
With current retirement rules, longer lifespans still stress the system, but less severely.
With a full retirement-age reform linked to life expectancy, sustainability becomes essentially insensitive to longevity increases.
In other words: Extending work careers can fully offset longer lives — but only with policy support.
6. Worst-case scenarios occur when health costs are modeled naively
If one wrongly assumes that older people always consume more care just because of age (ignoring proximity to death):
Sustainability gaps increase sharply.
Public debt surges.
Taxes rise by many GDP points.
The authors emphasize that this naïve model is unrealistic, but serves to illustrate how policy misinterpretation of aging can lead to unnecessary alarm.
🧭 Overall Conclusion
The paper’s central message is optimistic but conditional:
Yes — longer lifetimes can be financially sustainable.
But only if societies simultaneously extend working lives.
This requires:
linking retirement ages to life expectancy
reforming disability and early-retirement pathways
recognizing that healthcare costs relate to dying, not simply aging
continual monitoring and adaptive policy design
With correct policies, the same generations who enjoy longer lives can also pay for them, maintaining fiscal balance without burdening younger cohorts.
However, uncertainty remains large. Continuous data collection, improved forecasting, and evidence-based policy adjustments are essential.... |