The industrialized nations face considerable economic challenges in the years ahead. In a macroeconomic context, they must try to keep standards of living on an upward trajectory and to allocate these improvements equitably across their populations. In earlier chapters, we noted that retirement systems are fundamental to this allocation process, serving to transfer economic resources from workers to retirees. In the future, pension and health care programs will become the crucial linkage between the macroeconomic prosperity of aging societies and the relative welfare of all segments within them.

The European Commission (EC), the OECD, the World Bank, and various other entities have projected much higher costs for the pension systems in nearly all developed nations under their current policies. The evidence so far indicates that most of these countries have yet to take measures to reduce costs in ways that do not jeopardize income adequacy for retirees of the future.

The EC has identified a number of objectives that encompass three main economic goals: income adequacy for dependent populations; financial sustainability, not only of pension systems but of the entities that support them; and modernization of pension systems. Countries with high debt ratios need to adopt measures for budgetary consolidation. Enacting policies that promote longer working careers and higher workforce activity rates are an important strategy in making pensions sustainable.