New pensions

The “pay-as-you-go” government pension system common to many countries, as you point out, will not be financially sustainable, the result of the rapid ageing of societies in developed countries (No 262, July 2007). As your graph shows, the only way to fund the pensions deficit will be through one or all of the following measures: a large tax increase, a substantial decrease in benefits or a significant raise in the retirement age.

Before trying to reform rich world government pension systems, however, it is worth considering whether they are actually achieving perhaps their two most commonly stated objectives.

Do government pensions currently provide an income which allows the vast majority of people to maintain their pre-retirement living standards? The answer is probably no. Do government pensions, by providing an initial stimulus, then at least encourage people to further save for their retirements? Judging by the record levels of household debt in several OECD countries, the answer would again appear to be no. Indeed, government pensions more likely discourage private savings because individuals mistakenly expect their pension benefits to be greater than they actually will be.

A switch to voluntary, individually owned, privately invested accounts would provide a far better retirement system for many working people. It would provide higher retirement benefits, offering people a better rate of return on their money, and lift more seniors out of poverty. It would be solvent, as individuals could only take out what they put in, with interest. It would also eliminate many other problems arising from mandatory state pensions–from no longer penalising groups with shorter life expectancies to freeing pensioners from dependence on the whims of politicians for their retirement income.

Public information campaigns alerting people to the pros and cons of exposure to different levels of risk in their retirement portfolios would seem sensible. But rather than attempt to fix unworkable pension systems, it would be far wiser to create new ones that do.

D. Kimble
Long Island, New York, US

©OECD Observer No 263, October 2007

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017