## sipea2025052

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---

### A. Population Trends in Andorra
- Life expectancy rose to 84.6 years in 2023.
- Fertility rate declined from 1.41 births per woman in 2010 to 0.79 in 2023; replacement rate is 2.1.
- 2010–2024 changes:
  - Share of population aged 65 or older: 11 percent → 15 percent.
  - Proportion of children: 16 percent → 11 percent.
- 2022 snapshot:
  - Life expectancy at birth: 83.5 years (highest in the sample; nearly 3 years longer than the EU average).
  - Fertility rate: 0.94 births per woman (EU average in 2022: 1.5).
- Working-age population (ages 20–64) ~68 percent of total population over the past decade (supported by inward migration).
- Migration (2016–2023):
  - Population increase: 12,000 people.
  - Net migration: 10,700 people (89 percent of the increase).
  - 9,800 net migrants (92 percent) were of working age.
- Net migration rates:
  - 2.4 percent of population in 2022.
  - 4.2 percent in 2023.
- Cross-country data sources: 2024 Ageing Report and Eurostat.

### B. Impact on the Pension System
- Structure and parameters:
  - Pay-as-you-go system.
  - 2015 reform: retirement age set at 65 and minimum of 15 years of contributions.
  - Benefits based on a points system with an implicit assumption of 9.6 years of payouts after retirement.
  - Pillar 1 mandatory for all employees; Pillar 2 mandatory for some government employees and voluntary in private sector.
- Institutions and reserves:
  - CASS (Caixa Andorrana de Seguretat Social): collects and distributes pension payments.
  - FRJ (Fons de Reserva de Jubilacio): accumulates and manages surpluses; cushion for deficits.
  - FRJ assets as of end-2024: €1.8 billion or about 50 percent of GDP.
  - FRJ investments: mix of equities and high-quality credit instruments.
- Generosity and fiscal parameters:
  - Benefit payout ratio: around 44 percent (similar to EU average).
  - Pension contribution ratio: 12 percent of salary (comparator range: 16 percent to 28 percent).
  - Conversion assumption: payouts for 9.6 years, which does not reflect current life expectancy trends.
- Dependency ratios and projections:
  - Current old-age dependency ratio (65+ / 20–64): 22 percent (lower than EU countries in 2022).
  - UN projection: dependency ratio to rise to 73 percent by 2050.
  - Higher dependency ratio will increase pension expenditures.
- Projections and sustainability (assumptions: long-term growth 1.5 percent; inflation 1.7 percent):
  - No-policy-change scenario:
    - Pension fund expected to run a deficit starting in 2027.
    - FRJ reserve fund projected to be depleted by 2043.
    - Pension expenditures: 4.7 percent of GDP in 2022 → about 11.3 percent of GDP by 2050.
  - Recent shift in deficit and depletion year reflects increased working-age population, but system remains unsustainable without urgent reforms.

### C. Impact on the Healthcare System
- System overview:
  - SAAS (Servei Andorrà d'Atenció Sanitària) administers public healthcare (created in 1986).
  - Public healthcare primarily funded by CASS via mandatory contributions from employees, employers, and government.
  - Private sector and private insurance supplement services not fully covered by CASS or to access private facilities.
  - Agreements with France and Spain provide mutual medical coverage and access to specialized care abroad.
- Coverage and preventive programs:
  - Universal coverage for legal residents and employees contributing to social security.
  - SAAS runs preventive and geriatric programs: vaccinations, screenings, health education, lifestyle promotion, occupational health, specialized senior programs.
- Efficiency factors:
  - Cross-border agreements avoid high costs of maintaining specialized services domestically.
  - Small size and organized system enabled rapid pandemic response (100 percent of residents inoculated).
  - Seasonal inward migration of younger workers (who consume less healthcare) helps keep expenditures low.
  - Public health expenditures: around 5.6 percent of GDP in 2022 (lower than EU average).
- Demographic impact on demand and costs:
  - Share aged 65+:
    - 15 percent in 2022 (one of the lowest shares in EU comparison).
    - Projected to rise to 37 percent by 2050 (highest among peers, UN projections).
  - Share aged 80+:
    - 4 percent in 2022 → 13 percent by 2050.
    - CASS: per capita healthcare expenditures increase with age, peaking above €5,000 for individuals older than 80; this age group accounts for three times their population share in healthcare spending.
- Projected healthcare expenditures (no-policy-change scenario):
  - Method 1 (dependency-ratio relationship using 2024 EC Ageing Report sample): healthcare expenditures projected at 7.8 percent of GDP in 2050 (increase of 2.2 percentage points of GDP vs 2022).
  - Method 2 (apply CASS 2023 per capita expenditures by 10-year age intervals to UN 2050 population structure): healthcare expenditures projected at 7.6 percent of GDP in 2050 (increase of 2 percentage points of GDP vs 2022).
  - Both methods yield similar increases; estimates subject to uncertainty.
- Comparative outlook:
  - 2024 Ageing Report projects Andorra to experience the largest increase in healthcare expenditures between 2022 and 2050 among the sample, shifting from below EU average in 2022 to above EU average by 2050.
- Peer reform examples:
  - Luxembourg: promoted digital health initiatives over the last 15 years to improve delivery and efficiency; became a hub for health technology companies.
  - Malta: 2023–2030 National Strategic Policy for Active Ageing focuses on social inclusion, healthy ageing, and equality to keep older population healthy and active and reduce healthcare costs.

### D. Conclusions and Policy Recommendations
- Fiscal impact and projections:
  - Andorra projected to age at the fastest pace in Europe due to increasing life expectancy and declining fertility.
  - Without reforms, pension and healthcare expenditures projected to increase by 8.8 percentage points of GDP by 2050 compared to 2022.
  - This increase will place considerable strain on public finances, requiring adjustments in other expenditures, raising revenues, or increasing public debt.
  - Inaction is not viable given Andorra's vulnerability as a microstate.
- Pension reform options and impacts:
  - CASS 2022 proposal (combined changes):
    - Increase contribution rate from 12 to 16 percent of gross salary.
    - Increase conversion factor from 9.6 to 17 in 25 years.
    - Increase retirement age from 65 to 67 in 8 years.
    - Combined effect: first system deficit delayed until 2039; reserves depletion starts from 2040.
  - Link retirement age to life expectancy (examples: Denmark, Italy, Finland).
  - Develop additional pension pillars:
    - Pillar 1 dominant; Pillar 2 underdeveloped; Pillar 3 nonexistent.
    - Expand Pillars 2 and 3 to enhance sustainability and sufficiency.
- Healthcare reform recommendations and revenue options:
  - National Health Pact (2024) provides foundation for reforms.
  - Objectives: improve service delivery efficiency, control costs, strengthen population health, increase system revenues.
  - Recommendations:
    - Improve cost efficiency: transition to value-based care; make pricing information accessible; promote digitalization in planning, delivery, and follow-up of care.
    - Adopt payment models based on processes (e.g., pregnancy care) rather than individual visits; deploy consumer apps and healthcare dashboards.
    - Promote preventive care and healthy aging: expand regular checkups and healthy aging programs to increase impact and accessibility; raise healthy life expectancy to reduce healthcare expenditures and support longer working lives.
    - Increase contributions and revenues:
      - Current contributions: employee 3 percent and employer 7 percent of salary.
      - Contributions may need to increase to reflect growing expenditures.
      - Broaden services for those able to pay (e.g., passive residents) to boost revenues.
    - Plan for aging-driven demand shifts toward elderly-oriented services and investments in specialized professionals.
- Migration and labor-market policies:
  - Active migration policies should be part of the strategy.
  - Migration has helped maintain working-age population; with negative fertility trends, migration remains crucial to slow aging.
  - Priorities: attract and retain highly skilled labor; create a business-friendly environment to support new businesses in higher value-added sectors; expand goods and labor markets—potentially through an EU association agreement—to mitigate fiscal pressures.
- Broader economic and social implications:
  - Aging will increase long-term care demand and shift demand for goods and services toward elderly needs.
  - Authorities must plan for workforce needs in elderly care and adjust policies accordingly.
  - Despite challenges, Andorra is in a strong position to undertake pension and healthcare reforms to help maintain macroeconomic stability in the face of population aging.

*Source: sipea2025052*

### 4.      This paper is organized as follows. The first section will discuss recent population and

### 4.      This paper is organized as follows.

### A. Population Trends in Andorra
- Life expectancy in Andorra has been rising consistently; in 2023, life expectancy reached 84.6 years.
- Fertility rate declined from 1.41 births per woman in 2010 to 0.79 in 2023, below the replacement rate of 2.1.
- From 2010 to 2024:
  - Share of population aged 65 or older increased from 11 percent to 15 percent.
  - Proportion of children decreased from 16 percent to 11 percent.
- Andorra in 2022:
  - Life expectancy at birth was 83.5 years—the highest in the sample and nearly 3 years longer than the EU average.
  - Fertility rate was 0.94 births per woman compared to the EU average of 1.5 in 2022.
- Working-age population (ages 20 to 64) has remained around 68 percent of total population over the past decade, supported by inward migration.
- Migration statistics (2016–2023):
  - Population increased by 12,000 people.
  - Net migration accounted for 89 percent of the increase (10,700 people).
  - 92 percent of net migrants (9,800 people) were of working age.
- Net migration rates:
  - 2.4 percent of population in 2022.
  - 4.2 percent in 2023.
- Cross-country data sources used: 2024 Ageing Report and Eurostat.

### B. Impact on the Pension System
- Pension system structure:
  - Operates on a pay-as-you-go basis.
  - 2015 reform: retirement age set at 65 and minimum of 15 years of contributions.
  - Pension payments based on a points system with an implicit assumption of 9.6 years of payouts after retirement.
  - Pillar 1 mandatory for all employees; Pillar 2 occupational pensions mandatory for some government employees and voluntary in private sector.
- Institutions:
  - CASS (Caixa Andorrana de Seguretat Social): collection and distribution of pension payments.
  - FRJ (Fons de Reserva de Jubilacio): accumulates and manages surpluses; serves as cushion for deficits.
  - FRJ assets as of end-2024: €1.8 billion or about 50 percent of GDP. Funds invested in a mix of equities and high-quality credit instruments.
- Generosity and fiscal parameters:
  - Benefit payout ratio around 44 percent, similar to EU average.
  - Pension contribution ratio of 12 percent of salary, lower than typical comparator range of 16 percent to 28 percent.
  - Pension conversion ratio assumes payouts for 9.6 years, which does not reflect current life expectancy trends.
- Dependency ratios and projections:
  - Current old-age dependency ratio (65+ / 20-64) was 22 percent, lower than EU countries in 2022.
  - UN projections: dependency ratio set to rise to 73 percent by 2050.
  - Increase in dependency ratio will increase pension expenditures.
- Projections and sustainability:
  - Projections use actuarial assumptions and IMF macroeconomic forecasts: long-term growth of 1.5 percent and inflation of 1.7 percent.
  - Under a no-policy-change scenario:
    - Pension fund expected to run a deficit starting in 2027.
    - FRJ reserve fund projected to be depleted by 2043.
    - Pension expenditures in 2022 were 4.7 percent of GDP; projected to reach about 11.3 percent of GDP by 2050.
  - Recent shift in deficit and depletion year reflects increased working-age population; conclusion remains that without urgent reforms the pension system is unsustainable.

### C. Impact on the Healthcare System
- System overview:
  - Public healthcare administered by SAAS (Servei Andorrà d'Atenció Sanitària), created in 1986.
  - Public healthcare primarily funded by CASS through mandatory contributions from employees, employers, and government.
  - Private healthcare sector exists; private insurance used for services not fully covered by CASS or to access private facilities.
  - Agreements with France and Spain provide mutual medical coverage and access to specialized care abroad.
- Coverage and services:
  - Universal coverage for all legal residents and employees contributing to social security.
  - SAAS runs public preventive and geriatric programs: vaccinations, screenings, health education, lifestyle promotion, occupational health, and specialized senior programs.
- System efficiency factors:
  - Agreements with neighboring countries avoid high costs of maintaining specialized services domestically.
  - Small size and organized system contributed to rapid pandemic response (100 percent of residents inoculated).
  - Seasonal inward migration of younger workers, who consume less healthcare, helps keep expenditures low.
  - Public health expenditures around 5.6 percent of GDP in 2022, lower than EU average.
- Demographic impact on healthcare demand:
  - Share of population aged 65+:
    - 15 percent in 2022 (one of the lowest shares in EU comparison).
    - Projected to rise to 37 percent by 2050 (highest among peers, UN projections).
  - Share of population aged 80+:
    - 4 percent in 2022 projected to increase to 13 percent by 2050.
    - CASS analysis: healthcare expenditures per capita increase with age, peaking above €5,000 for individuals older than 80; this age group accounts for three times their population share in healthcare spending.
- Projected healthcare expenditure increases (no-policy-change scenario):
  - Method 1 (relationship between dependency ratio changes and healthcare expenditures from 2024 EC Ageing Report sample): healthcare expenditures projected to be 7.8 percent of GDP in 2050, 2.2 percentage points of GDP higher compared to 2022.
  - Method 2 (apply CASS 2023 per capita health expenditures by 10-year age intervals to UN-projected 2050 population structure): healthcare expenditures projected to be 7.6 percent of GDP in 2050, 2 percentage points of GDP higher compared to 2022.
  - Estimates subject to uncertainty, but both methods yield similar increases.
- Comparative outlook:
  - According to the 2024 Ageing Report, Andorra is projected to experience the largest increase in healthcare expenditures between 2022 and 2050 among the sample; Andorra shifts from below EU average in 2022 to above EU average by 2050.
- Peer reform examples:
  - Luxembourg: promoted digital health initiatives over the last 15 years to improve delivery and efficiency; emerged as a hub for health technology companies.
  - Malta: developed a 2023-2030 National Strategic Policy for Active Ageing focusing on social inclusion, healthy ageing, and equality to keep older population healthy and active and reduce healthcare costs.

### D. Conclusions and Policy Recommendations
- The paper's structure indicates that conclusions and policy recommendations will be presented in the final section.

*Source: sipea2025052*

### 25.      Aging will have a significant fiscal impact in Andorra. The increase in life expectancy and

### 25.      Aging will have a significant fiscal impact in Andorra. The increase in life expectancy and

### Fiscal impact and projections
- Andorra is projected to age at the fastest pace in Europe due to increasing life expectancy and declining fertility.
- Without reforms, pension and healthcare expenditures in Andorra are projected to increase by 8.8 percentage points of GDP by 2050 compared to 2022.
- This projected increase will place considerable strain on public finances, requiring adjustments in other expenditures, raising revenues, or an increase in public debt.
- Inaction is not a viable option for Andorra, given its vulnerability as a microstate.

### Pension system: findings and reform options
- Pension reform has been under discussion for many years; CASS commissioned actuarial studies and published a position paper in 2022 highlighting unsustainability.
- Possible reform options:
  - Adjust pension system parameters (CASS 2022 proposal):
    - Increase contribution rate from 12 to 16 percent of gross salary.
    - Increase conversion factor from 9.6 to 17 in 25 years.
    - Increase retirement age from 65 to 67 in 8 years.
    - Combined, these changes delay the first system deficit until 2039, and reserves depletion starts only from 2040.
  - Link retirement age to life expectancy (as done in other countries, e.g., Denmark, Italy, and Finland) to make the system more responsive to demographic change.
  - Develop additional pension pillars:
    - Pillar 1 currently dominant (social security).
    - Pillar 2 (employer-sponsored plans) underdeveloped.
    - Pillar 3 (voluntary private savings) does not exist.
    - Expanding Pillars 2 and 3 would offer more retirement saving options and enhance sustainability and sufficiency.

### Healthcare reform: recommendations and revenue options
- Healthcare reform is under discussion; the National Health Pact was agreed upon by all stakeholders in 2024, laying the foundation for reforms.
- Key reform objectives: improve service delivery efficiency, control costs, strengthen population health, and increase system revenues.
- Recommendations:
  - Improve cost efficiency of services:
    - Transition to value-based care (payments based on patient outcomes).
    - Make pricing information for healthcare services easily accessible to consumers.
    - Promote digitalization in planning, delivery, and follow-up of care.
    - Authorities plan to adopt payment models based on processes (e.g., pregnancy care) rather than individual visits, and digital initiatives like consumer apps and healthcare dashboards.
    - Given that Andorra has only one hospital, controlling costs in public facilities is crucial.
  - Promote preventive care and healthy aging:
    - Early identification and prevention of diseases as a cost-effective strategy.
    - Expand existing preventive care system (regular checkups) and programs for healthy aging to increase impact and accessibility.
    - Increasing healthy life expectancy supports both lower healthcare expenditures and a stronger pension system through longer productive working lives.
  - Increase contributions and revenues:
    - Current funding through contributions: employee 3 percent and employer 7 percent of salary.
    - Contributions may need to increase to reflect growing expenditures.
    - Revenues could be boosted by offering a broader range of services to those able to pay (e.g., passive residents).
    - Aging will shift demand toward elderly-oriented services, presenting opportunities to generate additional revenue and require advance planning for investments and specialized professionals.

### Migration and labor-market policies
- Active migration policies should be part of the strategy to address aging.
- Inward migration has helped maintain the working-age population ratio despite aging.
- Given long-standing negative fertility trends, migration will remain crucial to slow population aging.
- Policy priorities:
  - Attract and retain talent, particularly highly skilled labor.
  - Create a business-friendly environment to support establishment and growth of new businesses in higher value-added sectors to drive economic diversification and increase tax revenues.
  - Expand the size of goods and labor markets—potentially through an EU association agreement—to help mitigate aging-related fiscal pressures.

### Broader economic and social implications
- Aging will affect long-term care demand and other services tailored to the elderly.
- Economic shifts will include increased demand for elderly care professionals and changes in demand for goods and services.
- Authorities must plan for these changes and adjust policy accordingly.
- Despite challenges, Andorra is in a strong position to undertake necessary pension and healthcare reforms to help maintain macroeconomic stability in the face of population aging.

*Source: sipea2025052 - 25.      Aging will have a significant fiscal impact in Andorra. The increase in life expectancy and (IMF).*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025052.pdf_