DISCUSSION PAPER PI-0602

Analyses of proposed reforms and the viability of immigration based policies in response to ageing demographics Krishna Kotecha ABSTRACT This paper briefly examines the options for reform proposed by the Pensions Commission in 2004 to sustain the UK state pension system in response to an ageing population. It further explores, under various scenarios, the long-term viability of immigration as an alternative policy response by developing a population projection model to determine the replacement migration levels that would be required to maintain contributions (taxes) at current levels, using population data and assumptions in the public domain. The economic and social implications of immigration-based policies are also considered. The results indicate that not only does each policy option proposed by the Pensions Commission require changes that are too large for the policy to be implemented on its own, but that a combination of options too is likely to require discomforting changes at the individual level when considered under plausible scenarios. Economic and social implications aside, the results also indicate that immigration is an inefficient and ineffective way of salvaging an ageing society. The required replacement migration levels are abnormally high and too volatile for it to be considered as a viable policy alternative.