Rebuilding state pension systems with fairness and urgency

The most resilient pension systems incorporate mechanisms that automatically adjust contributions or benefits independent of political cycles. Linking pensions to objective indicators such as life expectancy or the system’s financial balance is essential. Countries like Sweden have shown that such mechanisms reduce fiscal pressure as populations age, stabilizing the system and avoiding the need for frequent, improvised, politically driven reforms.

• The fix: Pensions should be adjusted according to life expectancy. Pension indexation should account not only for inflation but also for the financial position of the system.

With fewer workers contributing, relying solely on a pay-as-you-go system is increasingly risky. To diversify sources of retirement income, a mandatory individual savings component should be introduced. Moving toward a mixed model — half pay-as-you-go, half privately funded — would help shield the public system from demographic shocks and distribute the burden more fairly across generations.

• A model to follow: Sweden combines collective pay-as-you-go with mandatory individual defined contribution (DC) accounts managed by the state and invested in private funds. Its “premium pension” system has turned millions of workers into active savers and investors to guarantee their financial security in their retirement years.

In many countries, pensions are calculated using only part of a worker’s career or based on formulas that ignore actual lifetime contributions. This favors individuals with high salaries late in their careers and penalizes those who contribute steadily over time. To reduce such inequalities, pension entitlements should reflect every amount contributed over a worker’s full working life.

• Make it fair: Abolish the maximum contribution ceiling while keeping the maximum pension unchanged. This raises revenue without negatively affecting the middle classes.

Sustaining pensions requires transparent accounting. Many public expenses covered by social security contributions — such as disability or parental leave — are not related to retirement. Financing these items separately, either through differentiated contributions or via the general budget, would clarify which costs belong to pensions and which reflect broader social welfare policies. Ultimately, pensions are deferred wages, and the portion of contributions allocated to them is mandatory retirement savings.

• Ringfence: Separating out pensions from other social security expenses would improve accountability and transparency without increasing total spending.

Pension reforms fail more often due to social resistance than to technical shortcomings. Governments that have attempted reforms without addressing the interests of those most affected have been forced to backtrack in the face of public protests (as France did in 2025). To avoid such backlash, compensation mechanisms must be designed into any reform.

• Legitimize: Complement reforms with transfers — financed through public debt or tax incentives — for the groups most adversely affected, typically younger workers with high contribution rates. This enhances social acceptance and reduces the political cost of reform.

A 2025 ranking of 52 pension systems around the world by Mercer Consulting, the CFA Institute and Monash Business School in Australia graded pension systems according to three benchmarks — adequacy, sustainability and integrity — which Javier Diaz-Gimenez and Julian Diaz-Saavedra also highlight in their research on Spain’s pension system.

What follows are five common policy areas that governments are targeting to safeguard the future of their state pension systems in response to the changing retirement landscape.