Policy Brief: Pension Reform: The Unfinished Agenda

Reforming pensions has loomed large over the policy agenda of OECD countries for several years as governments grappled with the challenge of ageing populations or unsustainably generous systems. It is often said in the United States that reforming public pensions is the “third rail” of politics: touch it and you die, but the phrase could well apply to all OECD countries. Pensions involve decisions for the long term, but most governments will have left office before the long-term benefits of any pension reform appear, so all they reap are criticisms in the short term of their reform efforts.

Nevertheless, much has been done since the early 1990s to make pension systems fit for the future; often, more than governments are given credit for. Nearly all the 30 OECD countries have made at least some changes to their pension systems in that period. And 16 of them have made major reforms that will significantly affect future benefits.

Six of the ten countries with the highest public expenditures on pensions as a percentage of GDP in 1990 – Austria, France, Germany, Italy, Sweden and Finland – have undertaken major pension reforms since 1990. These reforms have cut benefits and will lead to lower pension spending in the future. But the ten OECD countries with the lowest pension expenditures in 1990 have been almost equally active. They will face significant financial challenges in the future, either because of population ageing or unsustainably high pension promises, which they are aiming to ease by acting now.

One thing is already clear. People in OECD countries will have to save more for their retirement as a result of the pension reforms carried out in recent years. But pension reform is far from being complete. This Policy Brief looks at what governments have done to reform pension systems in OECD countries, and what more they need to do to ensure sustainable pension systems in the longer term.