A Century of Pensions Spending

Pensions spending increased rapidly during the second half of the 20th century.

Chart 2.71: Pensions Spending in 20th Century

Government pensions spending, including both pensions for government employees and government pensions for workers like Social Security, started out at the beginning of the 20th century at zero percent of Gross Domestic Product (GDP). It increased very slowly during the first half of the century. It was only in 1931 that government pension expenditure reached 0.12 percent of GDP. By the beginning of World War II pension expenditure had doubled — all the way to 0.22 percent of GDP.

After World War II pension expenditures, now including Social Security payouts, began to accelerate, reaching 1 percent of GDP by 1953 and doubling to 2.1 percent of GDP by 1958. Pension expenditure reached 3 percent of GDP by 1970 and 4.22 percent by 1974. Pension expenditure breached 5 percent of GDP in 1980.

The ramp-up in pensions expenditure began to moderate after 1980, reaching 5.3 percent of GDP in 1990 and 5.5 percent in 2000. Pension spending breached 6 percent of GDP in the recession year of 2009, hitting 6.56 percent of GDP in that year. Pensions expenditure is expected to stay in the area of 6.6 percent of GDP for the next few years.

Government Pensions Before Social Security

Government spent modest amounts on pensions in the first half of the 20th Century.

Chart 2.72: Pensions Spending Before Social Security

At the start of the 20th century governments spent nothing on civil pensions. This began to change right before World War I as local governments began to implement pensions programs for their employees. After World War I the federal government and state governments started to show expenditures on pension programs for their employees. The total cost of these programs had reached one tenth of one percent of GDP by 1930.

Chart Key:
- Federal spending
- State spending
- Local spending

Pensions spending surged in the during the Great Depression with federal spending reaching 0.08 percent of GDP, state pension spending reaching 0.06 percent of GDP and local government pension spending reaching 0.9 percent of GDP by 1940.

Government Pensions in the Social Security Age

Social Security dominates pension spending in the United States.

Chart 2.73: Pensions Spending in Social Security Age

Since the passage of Social Security in 1935 the program has come to dominate government pension spending. Starting at 0.08 percent of GDP in 1940 federal pension spending reached 1.15 percent of GDP in 1955 and 2.01 percent of GDP in 1959. In the early 1960s federal pension spending stabilized before resuming its growth in the lat 1960s, breaching 3.11 percent of GDP in 1972.

Chart Key:
- Federal spending
- State spending
- Local spending

The main ramp-up in Social Security spending occurred between 1965 and 1980, when federal pension spending rose from 2 percent of GDP to 5 percent. In the years after 1980 Social Security spending went into a modest decline, bottoming out at 4.4 percent of GDP in 2006. But the Great Recession and the retirement of the post-World War II baby boom has reversed that, and federal pension is expected to reach 5.4 percent of GDP by 2015.

In the post-World World War II era, as Social Security spending was ramping up, the pace of state and local pension spending remained fairly modest. But by 1989 state pension spending reached 0.5 percent of GDP and local pension spending hovered at 0.15 percent of GDP. In the 20 years since, state pension spending has more than doubled to 1.15 percent of GDP and local pension spending has nearly doubled to 0.26 percent of GDP.