“The pension bill future generations will inherit”: Demographic shifts intensify pressure on pension finances in the U.S. and Europe, drawing attention to Swedish and Singaporean reforms

Low birth rates and population aging increase pressure on pension finances worldwide
Fund depletion and generational disputes spill into protests as pension-related social conflicts spread
Sweden and Singapore combine links to individual contributions with funded savings

Pension systems worldwide are facing structural financial pressure. As the economically active population paying contributions shrinks and rising life expectancy extends pension payment periods, intergenerational conflicts over adjustments to benefits and contributions are intensifying. Experts say systems need to become more sustainable by linking individuals’ lifetime contributions more closely to the benefits they actually receive, while also incorporating funded savings and investment management.

Pension systems’ sustainability uncertain

On the 26th (all dates hereafter are local time), U.S. business news outlet CNBC reported that pension systems worldwide were facing financial burdens caused by low birth rates and population aging. According to the “2026 Global Pension Index (MCGPI)” report released on the 20th by global consulting firm Marsh and the CFA Institute, 43 of the 55 pension systems surveyed had total fertility rates below the population replacement level of 2.1 children per woman. Of these, 23 had total fertility rates below even 1.5 children.

The rise in remaining life expectancy was also clear. In developed regions, remaining life expectancy at age 65 reached approximately 20 years, up 50.9% from 1950. As people reaching age 65 live longer on average, pension funds must also pay benefits to retirees for longer. In an interview with CNBC, Sébastien Betermier, executive director of the International Centre for Pension Management (ICPM), warned: “Some pension funds have beneficiaries aged 107–108 who retired nearly half a century ago,” adding that “the costs these burdens pass on to the next generation are like a ticking time bomb.” The MCGPI report likewise said that securing funding for pensions and elderly care becomes more important as the ratio of retirees to workers declines, and concluded that very few pension systems can guarantee long-term stability under their current operating models.

Both pay-as-you-go and funded systems under threat

Pay-as-you-go pensions are considered particularly vulnerable to demographic changes. These systems use contributions paid by current workers to cover pension benefits for existing retirees. They can operate relatively stably when the working population is sufficiently large and the population continues to grow. But as low birth rates and population aging intensify, the pension payment costs borne by each current worker increase, making financial balance harder to maintain. Governments must therefore consider measures such as raising contribution rates, increasing the pension eligibility age, adjusting benefit levels and expanding fiscal support, potentially triggering conflicts of interest between generations.

Funded pension systems are not immune to population aging either. These systems invest contributions paid by workers and employers in financial assets, then use accumulated assets and investment returns to pay pension benefits. A decline in the number of current workers does not immediately lead to a shortage of funds for benefit payments. However, as participants age, payments to existing beneficiaries can exceed incoming contributions, weakening cash flow. Defined-benefit (DB) pensions, in particular, must pay benefits promised in advance based on factors such as employees’ years of service and wages. If rising life expectancy coincides with weak investment returns, pension funds face greater long-term burdens.

Examples of pension-related social conflict

Problems surrounding pension finances are already emerging around the world. The United States is a prime example. According to the “2026 Annual Report” released in June by the U.S. Social Security Board of Trustees, the reserves of the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays benefits to retirees and survivors, are projected to be depleted in the fourth quarter of 2032. This is approximately 3 months earlier than last year’s projection. Once the trust fund is depleted, existing contribution revenue is estimated to cover only 78% of scheduled benefits. The report warned that Social Security’s total expenditures have exceeded total income since 2021 and that this deficit could persist for an extended period if the current system remains unchanged.

Political divisions are deepening in Germany. Last December, Germany’s Bundestag passed a pension reform bill championed by Chancellor Friedrich Merz by 318 votes to 224. The bill centers on maintaining statutory pension benefits at 48% of average wages through 2031, with the associated additional fiscal spending estimated at EUR 185 billion (approximately USD 210 billion). The issue was who would bear the cost. Young lawmakers in the governing Christian Democratic Union and Christian Social Union (CDU/CSU) fiercely opposed the measure, arguing that guaranteeing pension benefits could increase future generations’ tax and contribution burdens. The dispute was serious enough to threaten the stability of the coalition government formed by the CDU/CSU and the Social Democratic Party (SPD). The Merz government subsequently pursued reforms including an increase in the pension eligibility age, while the distribution of burdens between generations remained a major political issue in Germany.

Table 1. Pension financing problems in major countries

The other side of France’s “welfare state”

Heavy pension spending is also increasing the strain on France’s public finances. According to data released by the French Ministry of Finance, the number of pension contributors per retiree fell from more than 4 in 1990 to approximately 2.5 last year and is projected to decline to 1.6 by 2070. This is a critical problem for France, where the net pension income replacement rate is around 70%, according to the Organisation for Economic Co-operation and Development (OECD). Last year, France’s pension deficit reached EUR 5.1 billion (approximately USD 5.79 billion), while pension spending swelled to approximately 14.1% of gross domestic product (GDP).

The French government has moved to curb pension spending and increase tax revenue, as the enormous pension burden has constrained its fiscal management. France’s proposed 2027 budget includes measures to save EUR 4.1 billion (approximately USD 4.66 billion) by limiting inflation-linked increases in pension benefits exceeding EUR 1,260 (approximately USD 1,431) per month, and to raise an additional EUR 1.4 billion (approximately USD 1.59 billion) in tax revenue by reducing pensioners’ tax benefits. Measures to cut other social security spending, including healthcare costs and sick-leave benefits, are also being pursued. French citizens recently took to the streets to express frustration with the government’s austerity policies and inadequate public services. The French Ministry of the Interior counted approximately 410,000 participants in nationwide rallies on the 24th, while labor unions estimated attendance at approximately 800,000. Clashes between protesters and police also occurred in some areas, including Paris and Marseille.

Reform precedents in Sweden and Singapore

As pension-related conflicts emerge across countries, experts say pension systems need to be reformed to link individuals’ contributions to the benefits they actually receive. Sweden is a leading example of a country that has adopted this approach. Through pension reforms in the 1990s, Sweden introduced a notional defined-contribution (NDC) system that calculates pension benefits based on factors including individuals’ lifetime contributions and life expectancy. Currently, 18.5% of pensionable income in Sweden is allocated to pension funding, with 16 percentage points going to the income pension and 2.5 percentage points to the premium pension. The income pension records contributions and rates of return in individual notional accounts to determine future benefits, while the premium pension invests money in funds selected by participants and reflects investment performance in pension payments.

Singapore also builds retirement income around individual savings. Through the Central Provident Fund (CPF), contributions paid by workers and employers accumulate in individual accounts and can be used for retirement living expenses, home purchases and medical costs. This year, the mandatory CPF contribution rate for workers aged 55 and under is 37% of monthly wages, with workers contributing 20% and employers 17%. A Retirement Account is created when a member turns 55, and after a specified level of retirement savings has been set aside, the remaining savings may be withdrawn subject to conditions. From age 65, members can, depending on factors such as their savings balance, join the lifelong annuity scheme “CPF LIFE” or receive monthly payments until their existing savings are exhausted. CPF LIFE payouts are determined by factors including members’ savings, interest and the age at which payments begin, and the scheme pools longevity risk among members.