Forecasting the Old-Age Dependency Ratio to Determine a Sustainable Pension Age

Rob Hyndman, Yijun Zeng and Han Lin Shang

No 31/20, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: We forecast the old-age dependency ratio for Australia under various pension age proposals, and estimate a pension age scheme that will provide a stable old-age dependency ratio at a specified level. Our approach involves a stochastic population forecasting method based on coherent functional data models for mortality, fertility and net migration, which we use to simulate the future age-structure of the population. Our results suggest that the Australian pension age should be increased to 68 by 2030, 69 by 2036, and 70 by 2050, in order to maintain the old-age dependency ratio at 23%, just above the 2018 level. Our general approach can easily be extended to other target levels of the old-aged dependency ratio and to other countries.

Keywords: coherent forecasts; demographic components; functional time series; pension age (search for similar items in EconPapers)
JEL-codes: C22 J11 J14 (search for similar items in EconPapers)
Pages: 20
Date: 2020
New Economics Papers: this item is included in nep-age, nep-for, nep-ore and nep-rmg
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