Aging population demands urgent pension reform: are we ready?

The world is aging much faster than we previously expected (even a decade ago). In the wake of the pandemic, life expectancy continues to rise around the world. That is, we will live longer than previously expected. On average, some of these additional years are in good health, while the number of years in poor health also increases.
Fertility rates are falling rapidly in almost all countries. Simply put, there are fewer babies in the world, and a variety of social changes are driving this outcome. The table below shows changes in fertility rates over the past 10 years for selected countries based on United Nations (UN) data1.
nation | 2014 | 2024 |
Australia | 1.84 | 1.64 |
Canada | 1.61 | 1.34 |
China | 1.59 | 1.02 |
India | 2.63 | 1.96 |
U.K. | 1.89 | 1.55 |
USA | 2.06 | 1.63 |
Given that a fertility rate of 2.1 is required to replace a population, most countries will now have a population decline at some point in the future if the effects of immigration are ignored. China’s population has begun to shrink.
However, before the population decreases, the first consequence will be the rapid aging of the population, the reduction of the labor force, and the increase in the proportion of the population above retirement age. As the Organization for Economic Co-operation and Development (OECD) notes: “The question of how to address the impact of population aging on pension systems has returned to center stage.” Governments no longer have the option of reviewing their pension systems; it has become a necessity .
However, such reform is never easy as it affects society’s expectations for the future. In particular, it may result in reduced pensions, longer working years and/or increased pension contributions or taxes.
My research on pension systems over more than four decades shows that some reforms have been made, but these have tended to be incremental or haphazard, without long-term goals.
The 2024 Mercer CFA Institute Global Pension Index (MCGPI) examined 48 retirement income systems around the world. The survey found that only four had Class A systems when assessed in terms of adequacy, sustainability and integrity. They are the Netherlands, Iceland, Denmark and Israel.

MCGPI uses more than 50 indicators, with more than half of the index values using data from international agencies such as the OECD, the United Nations and the World Bank. The balance of the index scores depends on the opinions of pension experts familiar with each country’s retirement income systems.
The better systems in MCGPI have most of the following features:
- Alleviating poverty among the elderly by providing a state pension for the poor equal to at least 25% of the average salary of a full-time worker
- Net pension replacement (including public and private pensions) of at least 65% for middle-income earners with full careers
- Private pensions cover at least 80% of the working-age population, ensuring a balance between public and private pensions for most individuals
- Pension contributions amount to at least 12% of salary for future investment
- Current pension assets account for at least 100% of GDP
- A well-governed and well-regulated private pension system
MCGPI recommends several major reforms to ensure that future retirees receive adequate income from a system that can continue to deliver in a way that encourages community confidence in this changing world. Recommended reforms include:
- Increasing coverage for employees and the self-employed in the private pension system will reduce pressure on future government budgets.
- Gradually increase the retirement age and/or the state pension age to encourage people to work longer and thus shorten the time to retirement.
- Encourage or require higher levels of private saving within and outside the pension system so that workers can spread consumption over their lifetimes.
- Reduce leakage in the retirement savings system prior to retirement, thus ensuring that funds are used for retirement purposes.
- Take steps to close the gender pension gap that exists in many pension systems.
- Improving the governance and transparency of private pension schemes to increase members’ confidence levels.
These reforms will increase the importance of private pension systems. Given the rising costs of health, aged care and public pensions, a growing aging population cannot rely heavily on future governments. Of course, the increase in retirement fund assets will also bring new challenges and opportunities to CFA Institute members and charter holders.
For example, as the world moves from defined benefits to defined contribution pension plans, investment and other risks will shift from employer sponsors to individual members. As the average age of pension scheme members also increases, pension scheme investment strategies will be affected as older members tend to be more conservative.
Education and communication to pension scheme members needs to be done carefully to avoid any negative reactions from the older population. One should not assume that current investment patterns should continue forever.
An aging population presents challenges and opportunities for all of us, including governments, policymakers, fund managers, pension schemes and financial advisers. Pension reform is needed in most countries, but its effects will vary across economies. There is no single solution. Nonetheless, there are lessons we can learn from each other to ensure that our future seniors can retire with dignity and confidence.