Demographics are rewriting the balance sheets of developed countries around the world—and pushing traditional pension systems beyond their limits.

The pressure is particularly evident in OECD countries. For these nations, the average ratio of older citizens (65 and older) to younger citizens (ages 15 to 64) will increase on average 2.5 times by 2050 from 2000 levels. That translates into a growing economic burden on the working-age population, as those younger workers will need to contribute an increasing share of their income to fund pensions. By 2060, total pension expenditures as a share of combined GDP for 31 of the 38 OECD nations is projected to hit 10.3%, up from 8.9% for the period 2020 through 2023.

Some countries have taken action to confront the challenge. Sweden, Denmark, and the UK, among others, have reformed their pensions systems over the last 20 years and put them on a firmer financial footing. Still, many of the changes have come with trade-offs, such as benefit reductions that disproportionately impact low-income groups.

So how can developed nations remake their pension frameworks to meet the needs of their aging societies? Our in-depth study of the pension challenge reveals that governments have an opportunity to act in two primary areas. First, they can rethink pension design by incentivizing funded pension schemes, supported by automatic adjustment triggers and poverty-floor guarantees. Second, they can ensure effective implementation of those reforms, including through citizen-focused engagement.

Pension reform is an inherently complex and politically difficult undertaking. Because the costs of inaction—and any benefits of reform—are not always immediately felt, inertia often prevails. However, delaying reforms to avoid public controversy only magnifies fiscal and political risks. Countries that develop thoughtful policy designs and robust strategies for implementation will be far better positioned to meet this urgent challenge.