Social Security’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. This demographic trend is occurring or will occur in all OECD countries. Although the number of workers for every elderly person in the U.S. has been relatively stable over the past few decades, it has already fallen substantially in other developed countries. The number of workers for every elderly person in the U.S. is projected to fall from 4.1 in 2005 to 2.9 in 2020. In nine of the OECD countries, this number has already fallen below the level projected for the U.S. in 2020. This rise in the share of the elderly in the population could have significant effects on countries’ economies, particularly during the period from 2010 to 2030. These effects may include slower economic growth and increased costs for aging-related government programs. Historically, developed countries have relied on some form of a PAYG program and have used a variety of approaches to reform their national pension systems. 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 pre-fund 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: 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 the growth rate of the economy. National pension reserve funds. These are set up to partially pre-fund 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 large increases in contribution rates to pay scheduled benefits. Funds can be invested in a combination of government securities and domestic as well as foreign equities. Individual accounts. These fully funded accounts are administered either by employers or the government or designated third parties. The level of retirement benefits depends largely on the amount of each person’s contributions into the account during their working life, investment earnings, and the amount of fees they are required to pay. We are applying GAO’s Social Security reform criteria to the experiences of countries that are members of the OECD as well as Chile, which pioneered individual accounts in 1981. We are assessing both the extent to which another country’s circumstances are similar enough to those in the U.S. to provide a useful example and the extent to which particular approaches to pension reform were considered to be successful. Countries have different starting points, including unique economic and political environments. Moreover availability of other sources of retirement income, such as occupation-based pensions, varies greatly. Recognizing this, GAO uses three criteria for evaluating pension reforms: Financing Sustainable Solvency. We are looking at the extent to which particular reforms influence the funds available to pay benefits and how the reforms affect the ability of the economy, the government’s budget, and national savings to support the program on a continuing basis. Balancing Equity and Adequacy. We are examining the relative balance struck between the goals of allowing individuals to receive a fair return on their contributions and ensuring an adequate level of benefits to prevent dependency and poverty. Implementing and Administering Reforms. We are considering how easily a reform is implemented and administered and how the public is educated concerning the reform. Because each country is introducing reforms in a unique demographic, economic, and political context these factors will likely affect reform choices and outcomes. For instance, several European countries we are reviewing have strong occupation-based pension programs that contribute to retirement income security. In addition, some countries had more generous national pensions and other programs supporting the elderly than others. All countries also provide benefits for survivors and the disabled; often these are funded separately from old age benefit programs. Some countries are carrying out reforms against a backdrop of broader national change. For example, Hungary and Poland were undergoing large political and economic transformations as they reformed their national pension systems. All of these issues should be considered when drawing lessons. In addition to the adjustments that countries have made to their existing PAYG systems, many countries have undergone other changes as well, indicating that change may not be a one-time experience. (See table 1.) Understanding the outcomes of a country’s reform requires us to look at all of the changes a country has made. The experiences of the countries that have adjusted their existing PAYG national pension programs highlight the importance of considering how modifications will affect the program’s financial sustainability, its distribution of benefits, the incentives it creates, and the extent to which 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 have undertaken a package of several far-reaching adjustments. The countries we are studying increased contributions to PAYG programs 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 UK, increased contributions by expanding the range of earnings subject to contributions requirements. Nearly all of the countries we are studying decreased scheduled benefits, 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. Increased minimum years of contributions. Another approach is to increase the minimum number of years of contributions required to receive a full 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 are studying use some kind of average wage index, others, including Belgium and France, have adopted the use of price indices. The choice of a wage or price index can have quite different effects depending on the rate at which wages increase in comparison to prices. We see variation in the extent to which wages outpace prices over time and among countries. Changed basis for determining year-to-year increases in benefits. In many of the countries we are studying, 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. Others, including Denmark, Ireland, Luxembourg, and the Netherlands, use increases in earnings or a combination of wage and price indices. Hungary, for example, changed from the use of a wage index to the Swiss method— an index weighted 50 percent on price changes and 50 percent on changes in earnings. Implemented provisions that provide a closer link between pension contributions and benefits. Countries that have adopted this approach stop promising a defined level of benefits and instead keep track of notional contributions into workers’ NDC accounts. Unlike individual accounts, these notional defined accounts are not funded. Current contributions to the program continue to be used largely to pay benefits to current workers, while at the same time they are credited to individuals’ notional accounts. When these programs include adjustments that link benefits to factors such as economic growth, longevity, and/or the ratio of workers to retirees, they may contribute to the financial sustainability of national pension systems. Several countries, such as Sweden and the UK, have undertaken one or more of these adjustments to their PAYG programs and have achieved, or are on track to achieve relative financial sustainability. Others, including Japan, France, and Germany, may need additional reforms to fund future benefit commitments. All of the countries have included in their reforms provisions to ensure adequate benefits for lower-income groups and put into place programs designed to ensure that all qualified retirees have a minimum level of income. Most do so by providing a targeted means-tested program that provides more benefits to retirees with limited financial means. Two countries—Germany and Italy—provide retirees access to general social welfare programs that are available to people of all ages rather than programs with different provisions for elderly people. Twelve countries use another approach to providing a safety net: a basic retirement benefit. The level of the benefit is either a given amount per month for all retirees or an amount based on years of contributions to the program. In Ireland, for example, workers who contribute to the program for a specified period receive a minimum pension.