The U.S. Social Security program’s projected long-term financing shortfall stems primarily from the fact that people are living longer and having fewer children. As a result, the number of workers paying into the system for each beneficiary is projected to decline. A similar demographic trend is occurring or will occur in all OECD countries. (See table 3 in app. II for demographic and other characteristics of OECD countries and Chile.) Although the number of workers for every elderly person (aged 65 and over) in the United States has been relatively stable over the past few decades, this ratio has already fallen substantially in other developed countries. The number of workers for every elderly person in the United States is projected to fall from 4.1 in 2005 to 2.9 in 2020 and to 2.2 in 2030. In nine of the OECD countries, this number has already fallen below the level projected for the United States in 2020. These decreases in the projected number of workers available to support each retiree could have significant effects on countries’ economies, particularly during the period from 2010 to 2030. These effects may slow growth in the economy and standards of living, and increase costs for aging-related government programs. Long run demographic projections are imprecise, however, due to uncertainty about future changes in longevity, for example. Although social security programs in all OECD countries and Chile provide benefits for qualified elderly people, survivors, and the disabled, the programs differ in many respects across the countries. In some countries, “social security” refers to a wide range of social insurance programs, including health care, long-term care, workers’ compensation, unemployment insurance, and so forth. To generalize across countries, we use “national pensions” to refer to mandatory countrywide pension programs providing old-age pensions. We use “Social Security” to refer to the U.S. Old-Age, Survivors, and Disability Insurance Program, since that is how the program is commonly known. Although nearly all OECD countries use contributions from workers and employers designated to finance pension benefits, most also use general revenues as a funding source. Nearly all OECD countries, including the United States, make pension benefits dependent on an individual’s work history, while several also provide benefits to all qualified residents whether or not they have a work history. Countries’ pension systems may be financed differently, use different criteria for identifying qualified beneficiaries, and calculate benefits in a different manner. Several OECD countries finance benefits to the disabled or survivors with worker or employer contributions designated for this purpose. Others use general revenue to finance these benefits or have a single fund that provides old- age pension benefits and benefits for the disabled and survivors. Some OECD countries provide a universal benefit of a specified amount each week or each month. Some adjust benefits based on time spent raising children, or pursuing education, as well as years spent working. Some national pension programs, identified as “defined benefit” programs, provide retirees a pension of a set amount per week or month or an amount calculated based on such factors specified by law as their number of years of work and the level of their earnings or contributions, and their age at retirement. Other national pension programs, identified as “defined contribution” programs, provide retirees income based on the accumulated value of contributions and investment earnings on those contributions. Many OECD countries have a pension system that includes a combination of pension programs rather than a single program, providing many retirees with more than one source of income. (See table 4 in app. II for additional information concerning countries’ national pension systems.) Voluntary occupational pension programs are common in many OECD member countries though the aggregate accumulated value of these pension funds exceeds 25 percent of gross domestic product (GDP) in only seven countries, including the United States, Canada, and Denmark. These include programs sponsored by employers, trade associations, or trade unions and regulated by governments; in some cases, the pensions provided by these programs are to some extent insured by governmental entities—counterparts to the Pension Benefit Guaranty Corporation in the United States. Tax laws in many countries encourage participation in these voluntary programs. Germany, for example, supplements its national pension system with voluntary individual “Riester” accounts, supported by subsidies as well as tax incentives. Our review, however, did not include these programs, except in the United Kingdom, where workers’ contributions to PAYG national pension programs are reduced if they choose to participate. Where these voluntary programs are prevalent, they can affect countries’ decisions about public pension reforms. Historically, developed countries have relied on some form of a PAYG national pension program. Over time, countries have used a variety of approaches to respond to demographic challenges and the ensuing increases in expenditures for these programs. In many cases, these approaches provide a basic or minimum benefit as well as a benefit based on the level of a worker’s earnings. Several countries are preparing to pay future benefits by either supplementing or replacing their PAYG programs. For example, some have set aside and invested current resources in a national pension reserve fund to partially prefund their PAYG program. Some have established fully funded individual accounts. These are not mutually exclusive types of reform. In fact, many countries have undertaken more than one of the following types of reform (see table 1 for the reforms OECD countries and Chile have undertaken): Adjustments to existing pay-as-you-go systems. Typically, these are designed to create a more sustainable program by increasing contributions or decreasing benefits, or both, while preserving the basic structure of the system. Measures include phasing in higher retirement ages, equalizing retirement ages across genders, and increasing the earnings period over which initial benefits are calculated. Some countries have created notional defined contribution (NDC) accounts for each worker, which tie benefits more closely to each worker’s contributions and to factors such as life expectancy and the growth rate of the economy. National pension reserve funds. These are set up to partially prefund PAYG national pension programs. Governments commit to make regular transfers to these investment funds from, for example, budgetary surpluses. To the extent that these contribute to national saving, they reduce the need for future borrowing or for large increases in contributions to pay scheduled benefits. Funds can be invested in a combination of government securities and domestic as well as foreign private sector securities. Because of differences in accounting practices, some countries report reserve funds as part of national budgets while others do not include them in federal figures. Individual accounts. These are fully funded accounts that are administered either by employers, the government, or designated third parties and are owned by the individual. The level of retirement benefits depends largely on the amount of contributions made by, or on behalf of, an individual into the account during his or her working life, investment earnings, and the amount of fees individuals are required to pay. The countries that have adjusted their existing PAYG national pension programs demonstrate a broad range of approaches for both reducing benefits and increasing contributions in order to improve the programs’ financial sustainability. Their experiences also provide lessons about the potential effects of some adjustments on the distribution of benefits, including the maintenance of a safety net and incentives to work and save. They also emphasize the care required in implementing and administering reforms and ensuring that the public understands the new provisions. To reconcile PAYG program revenue and expenses, nearly all the countries we studied have decreased benefits, and most have also increased contributions, often in part by increasing retirement ages. Generally countries with national pension programs that are relatively financially sustainable, based on estimated changes in spending on old-age pensions, have undertaken a package of several far-reaching adjustments. Most of the countries we studied increased program revenue by raising contribution rates, increasing the range of earnings or kinds of earnings subject to contribution requirements, or increasing the retirement age. Most of these countries increased contribution rates for some or all workers. Canada, for example, increased contributions to its Canadian Pension Plan from a total of 5.85 percent to 9.9 percent of wages, half paid by employers and half by employees. Several countries, including the United Kingdom, increased contributions by expanding the range of earnings subject to contribution requirements. Nearly all of the countries we studied decreased the promised level of benefits provided to future retirees, using a wide range of techniques. Some techniques reduce the level of initial benefits; others reduce the rate at which benefits increase during retirement or adjust benefits based on retirees’ financial means. Increased years of earnings. To reduce initial benefits, several countries increased the number of years of earnings they consider in calculating an average lifetime earnings level. France previously based its calculation on 10 years but increased this to 25 years for its basic public program. Austria is gradually increasing the number of years from 15 to 40 years. Increased minimum years of contributions. Another approach is to increase the minimum number of years of creditable service required to receive a benefit. France increased the required number of years from 37.5 to 40 years. Belgium is increasing its minimum requirement for early retirement from 20 to 35 years. Changed formula for calculating benefits. Another approach to decreasing the initial benefit is to change the formula for adjusting prior years’ earnings. Countries with traditional PAYG programs all make some adjustment to the nominal amount of wages earned previously to reflect changes in prices or wages over the intervening years. Although most of the countries we studied use some kind of average wage index, others, including Belgium and France, have adopted the use of price indexes. The choice of a wage or price index can have quite different effects, depending on the rate at which wages increase in comparison with prices. The extent to which wages outpace prices varies over time and among countries. Changed basis for determining year-to-year increases in benefits once retirement begins. In many of the countries we studied, the rate at which monthly retirement benefits increase from year to year during retirement is based on increases in prices, which generally rise more slowly than earnings.