The pension systems in European Union member states are very diverse, due to traditions how to provide retirement income, and to phases of the reform process. This system is also very important in the context of the social security of every individual or the society in which is settled. Since the system is influenced by changes in demographic fluctuations, living conditions, economic growth and so forth, it is very challenging for every European Union member state to keep the financial stability. To solve that problem, this paper aims to examine the financial stability of pension system in the European Union member states in the period 2003-2018. To obtain empirical results panel data analysis has been applied. The results showed that countries with higher old-age dependency ratio, life expectancy at age 65, replacement rate and poverty rate and public debt will also have higher pension expenditure, in average, while factors related to labour market negatively affects the pension spending.
Keywords: pension system, pension expenditure, financial stability, panel model, European Union