OECD Calls for Urgent Pension Reform as Rapid Ageing Threatens System Sustainability
OECD warns that without an immediate rise in effective retirement ages, global pension systems risk entering an unsustainable $6.8 trillion longevity debt spiral. (Source: Pexels)
OECD Report Confirms Accelerating Fiscal Strain; Calls for Immediate Elevation of Effective Retirement Ages to Mitigate $6.8 Trillion Longevity Risk
A critical new analysis from the Organisation for Economic Co-operation and Development (OECD) reveals that global pension systems are rapidly approaching a solvency inflection point, driven by persistently lower birth rates and extended life expectancies. The report underscores that the structural challenge of population ageing is set to impose unprecedented fiscal pressures on governments already grappling with high public debt and competing social expenditure needs.
The Demographic Time Bomb: Soaring Dependency Ratios
The analysis in OECD Pensions at a Glance 2025 paints a stark picture of the accelerating demographic shift across member countries. By 2050, the old-age dependency ratio is projected to increase sharply, reaching an average of 52 people aged 65 and over for every 100 people aged 20-64. This marks a substantial increase from 33 in 2025 and 22 in 2000.
The fiscal pressure is particularly acute in several key economies:
Asia-Pacific: South Korea faces the most dramatic increase, projected to rise by nearly 50 percentage points in its dependency ratio by 2050.
Europe: Countries including Greece, Italy, Poland, the Slovak Republic, and Spain are expected to see increases exceeding 25 percentage points.
Workforce Contraction: Over the next four decades, the working-age population (20-64) is projected to fall by over 30% in high-debt nations like Japan, Korea, Italy, and Greece, creating a direct downward pressure on national revenues while age-related expenditures escalate.
Mandate for Policy Recalibration: Working Longer
To ensure the financial sustainability of public pension schemes and maintain adequate financial security in old age, the OECD advocates for a decisive policy shift: the mandated elevation of effective retirement ages.
Current Trajectory: Based on current legislation, the normal retirement age across the average OECD country is set to increase from 64.7 (men) and 63.9 (women) for those retiring in 2024, to 66.4 and 65.9 years, respectively, for new labor market entrants.
Global Range: Future normal retirement ages demonstrate significant national variation, ranging from 62 in Colombia, Luxembourg, and Slovenia, to 70 years or more in Denmark, Estonia, Italy, the Netherlands, and Sweden.
Economic Impact: The structural challenges necessitate not only extending statutory retirement ages but strengthening opportunities for older workers, as a projected 13% fall in the working-age population could lead to an estimated 14% drop in GDP per capita by 2060 without counteracting labor market reforms.
The Replacement Rate Challenge and Economic Security
The report also highlights concerns regarding post-retirement financial security, particularly for average-wage earners.
Adequacy Concerns: For full-career, average-wage workers entering the labor market today, the net replacement rate (pension income as a percentage of net pre-retirement earnings) will average 63% across the OECD. However, this rate falls below 40% in Estonia, Ireland, South Korea, and Lithuania, signaling a growing need for supplementary private savings vehicles.
Income Disparity: Conversely, the future net replacement rate for workers earning half the average wage remains higher, averaging 76%, underscoring the vital safety net role of minimum guarantee provisions.
Tackling the Pension Gender Gap
A critical social and economic trend identified is the persistent gender pension gap, which, despite a reduction from 28% in 2007, still leaves women receiving monthly pensions that are 23% lower than men's on average.
Primary Drivers: The gap is predominantly driven by gender differences in lifetime earnings (estimated at 35% across the OECD), stemming from disparities in employment rates, hours worked, and hourly wages, exacerbated by the unequal burden of unpaid care work.
Policy Solutions: To close this gap, nations must implement comprehensive strategies combining labor market, family, and pension policies, focusing on:
Increased availability of affordable childcare.
Eliminating tax/benefit disincentives that discourage women's full-time employment.
Where applicable, eliminating earlier access to pension benefits for women.
The provision of survivor pensions, which currently reduce the gender pension gap in mandatory schemes by approximately one-third.
Strategic Implications for Global Longevity Market
This demographic and fiscal data confirms a robust and irreversible trend toward a longevity economy, demanding systemic innovation in both public finance and private markets. Governments must prioritize policies that promote active ageing and facilitate longer working lives, while the financial sector must accelerate the development of personalized retirement planning and investment solutions to offset declining public replacement rates.
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Sources by OECD
