Population ageing is a global phenomenon without precedent in the history of
humanity having implications in all facets of life. From an economic point of
view, population ageing is certainly one of the biggest challenges of modern
time. A consequence of these global demographic tendencies reflected in
growing number of pensioners which negatively affects sustainability of
public pension systems financed by the principle of intergenerational
solidarity (Pay-As-You-Go) - widely represented in public pension schemes of
European countries. In this paper, impact of demographic ageing on pension
systems is analyzed in the context of sustainability of public finance in
Serbia in the period 2010-2050. Although the comparative analysis of the
pension expenditure share in gross domestic product (GDP) does not point to
significant differences between Serbia and the countries in the neighborhood
and the European Union, the growth trend of subsidizing the Pension Fund from
the government budget endangers medium-term sustainability of the public
pension system in Serbia, bearing in mind that the implementation of measures
proposed in pension reforms can be valorized only in the long run. The main
objective of the analysis is projecting long-term pension expenditure as a
share of GDP. The projections were formed indirectly by modeling the average
pension expenditure, because this variable incorporates both growth in the
total pension expenditure and growth in the number of pensioners as a result
of demographic trends, and better reflects the actual growth of pension
expenditure. For the purposes of the analysis, in addition to the projection
of real GDP growth, size of the inactive population aged 65 and over, as the
main contingent of the pension system users and the total number of
pensioners, was projected by means of stochastic cohort component
methodology. Based on these projections and assumptions about the growth rate
of average pension expenditure (three scenarios), the projections of total
pension expenditure (as a percentage of GDP) are produced for the period
2010-2050. The results indicate that the growth rate of pension expenditure
over the past few years is unsustainable in the long run. However, there is
fiscal space for continuous real growth of pensions that does not jeopardize
the budget deficit on the medium term, and leads to long-term reduction of
the share of pension expenditures in GDP. The proposed change would not
affect sustainability of the pension system and consequently public finance
in Serbia, even in completely certain circumstances of significant increase
in the number of elderly and their pressure on the workforce. In this
context, critical review of the current government approach to the pension
growth dynamics was given from the perspective of medium-term sustainability
of pension system, which resulted in appropriate recommendations. Generally,
the intent of the Government of the Republic of Serbia on the indexation of
pensions represent a good solution long term, but the premise of increasing
pensions for a part of real GDP growth, if it is higher than 4%, is subject
to criticism from the point of view of medium-term sustainability. The crisis
cycle of the Serbian economy, similarly to that on a global level, has its
maximum and minimum phase. After a maximum of the crisis is reached, there
should be a few years of economic stagnation followed by gradual, and then by
faster economic growth. Due to the projection of a relatively higher rate of
economic growth and GDP in a future economic recovery, there is an increased
risk that such a growth could be followed by sudden jumps in the growth of
pensions, which could result in unsustainable funding of pension system.
Therefore, the Government should impose some limitations in terms of the
maximum increase in pension per annum in case of intensive and high economic
growth.
THE THOUGHT OF ABU YA’LA CONCERNING FINANCIAL SUPERVISION (STUDY ON THE BOOK OF AL-AHKĀM AL-SULṬĀNIYYAH)
