Reforming Retirement-Income Systems : Lessons from the Recent Experiences of OECD Countries

Reforming pensions looms large over the policy agenda of OECD countries. This is hardlysurprising since public spending on pensions accounted on average for 7 per cent of OECDGDP in 2005; and this pension spending effort is set to increase significantly over the comingdecades in response to population ageing. Pension policy is indeed challenging andcontroversial because it involves long-term decisions in the face of numerous short-termpolitical pressures. However, the status quo does not always win out so far as pension reformin concerned: public finance crises and the looming threat of ageing populations have provedeffective spurs for reform. As a result, much has been done since the early 1990s to makepension systems fit for the future. Nearly all the 30 OECD countries have made at least somechanges to their pension systems in that period. In 16 of them, there have been majorreforms that will significantly affect future benefits. The purpose of this paper is to summarisethese reforms and highlight the main lessons. Section 1 looks at which countries reformedtheir pensions systems and which did not. It also examines the fiscal challenges posed bypublic pensions. Section 2 describes the measures in the reforms themselves. These include,among other things, increases in pension age, changes in the way benefits are calculatedand smaller pension increases in retirement than in the past. Section 3 explores the impact ofthese reforms on future pension entitlements of today’s retirees, showing a clear trend to alower pension promise for today’s workers than for past generations. This means that peoplewill need to save more for their own retirement via private pension schemes, an issueexamined in Section 4. This is followed in Section 5 by a review of the main outstandingchallenges facing pension systems in OECD countries. The final section presents someconcluding remarks.