How pension policies are shifting globally
These are the common areas that governments around the world are tackling to future-proof their state pension systems
Retirement age
Partial retirement
Indexation guarantees
Benefit calculation
Delaying retirement
More info: “Public pension reforms: financial and political sustainability” and “Factor income shares and pension sustainability: a primer” by Javier Diaz-Gimenez and Julian Diaz-Saavedra. IESE Business School Insight No. 171
Partial retirement
The challenge
The recommendation
Examples
Rigid systems force a sudden shift from work to retirement. This inhibits older workers from continuing to participate in the labor market.
Introduce gradual transition options, such as partial or active retirement, allowing work and pension incomes to be combined, with benefits adjusted accordingly.
Spain has started to allow individuals to continue working past the statutory age of retirement while still drawing part of their pension. South Africa’s “two-pot” system converts part of the worker’s retirement benefits into an accessible savings account, allowing people to make annual withdrawals while still employed, and preserving the rest until retirement. This approach helps people balance immediate financial needs with long-term savings goals.
Indexation guarantees
The challenge
The recommendation
Examples
Replace fixed, automatic indexation with flexible adjustment mechanisms or caps tied to indicators such as life expectancy or the balance in the system.
Updating pensions in line with price or wage inflation preserves purchasing power, but sometimes this revaluation becomes a politically binding burden, as with the U.K.’s “triple lock” guaranteeing an annual increase based on Consumer Price Index (CPI) inflation, average earnings growth or 2.5%, whichever is highest.
Several EU countries link indexation to life expectancy. Some, like the Netherlands, are shifting from a flat-rate, collective benefit structure to an individual defined contribution, mandating earnings-related occupational pension schemes alongside the public option.
Benefit calculation
The challenge
The recommendation
Examples
Calculating final benefits based on part of a worker’s career is arbitrary; it generally favors high earners, exacerbating inequality and increasing pension costs.
Calculate pension rights using actual lifetime contributions and extend the contribution period to an individual’s full working life to strengthen fairness.
The international trend is toward individual defined contribution systems, where benefit levels depend on contributions made throughout a worker’s career. Countries like Spain that still use limited calculation periods retain the arbitrariness that many others are trying to correct.
Retirement age
The challenge
The recommendation
Examples
Longer lifespans, with many more years spent in retirement, demand delaying the age of retirement. Yet in aging societies where older citizens represent the majority of voters, delaying the retirement age is political dynamite.
Delay the age of retirement and link benefit levels to the life expectancy of retiring workers.
Several EU countries, including Italy and Sweden, adjust retirement ages and pension amounts to reflect the average life expectancy. In Spain, the retirement age is being phased up from 65 to 67 by 2027. France’s attempt to raise the retirement age from 62 to 64 — one of the lowest in the EU — sparked widespread protests, leading the government to temporarily pause the reform and bring it in more progressively over a longer period of time.
Delaying retirement
The challenge
The recommendation
Examples
Delaying retirement beyond the statutory age would improve the sustainability of the system, but current conditions don’t make it appealing for people to keep working.
Provide incentives such as bonuses or pension increases if people opt to work longer before eventually claiming their pension.
Deferring the state pension can increase benefits by 4% per year in Spain, around 6% per year in Germany and the U.K., while in the U.S. deferring social security beyond the full retirement age earns delayed retirement credits amounting to 8% per year until age 70.
How pension policies are shifting globally
IESE Insight
Created on January 21, 2026
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Transcript
How pension policies are shifting globally
These are the common areas that governments around the world are tackling to future-proof their state pension systems
Retirement age
Partial retirement
Indexation guarantees
Benefit calculation
Delaying retirement
More info: “Public pension reforms: financial and political sustainability” and “Factor income shares and pension sustainability: a primer” by Javier Diaz-Gimenez and Julian Diaz-Saavedra. IESE Business School Insight No. 171
Partial retirement
The challenge
The recommendation
Examples
Rigid systems force a sudden shift from work to retirement. This inhibits older workers from continuing to participate in the labor market.
Introduce gradual transition options, such as partial or active retirement, allowing work and pension incomes to be combined, with benefits adjusted accordingly.
Spain has started to allow individuals to continue working past the statutory age of retirement while still drawing part of their pension. South Africa’s “two-pot” system converts part of the worker’s retirement benefits into an accessible savings account, allowing people to make annual withdrawals while still employed, and preserving the rest until retirement. This approach helps people balance immediate financial needs with long-term savings goals.
Indexation guarantees
The challenge
The recommendation
Examples
Replace fixed, automatic indexation with flexible adjustment mechanisms or caps tied to indicators such as life expectancy or the balance in the system.
Updating pensions in line with price or wage inflation preserves purchasing power, but sometimes this revaluation becomes a politically binding burden, as with the U.K.’s “triple lock” guaranteeing an annual increase based on Consumer Price Index (CPI) inflation, average earnings growth or 2.5%, whichever is highest.
Several EU countries link indexation to life expectancy. Some, like the Netherlands, are shifting from a flat-rate, collective benefit structure to an individual defined contribution, mandating earnings-related occupational pension schemes alongside the public option.
Benefit calculation
The challenge
The recommendation
Examples
Calculating final benefits based on part of a worker’s career is arbitrary; it generally favors high earners, exacerbating inequality and increasing pension costs.
Calculate pension rights using actual lifetime contributions and extend the contribution period to an individual’s full working life to strengthen fairness.
The international trend is toward individual defined contribution systems, where benefit levels depend on contributions made throughout a worker’s career. Countries like Spain that still use limited calculation periods retain the arbitrariness that many others are trying to correct.
Retirement age
The challenge
The recommendation
Examples
Longer lifespans, with many more years spent in retirement, demand delaying the age of retirement. Yet in aging societies where older citizens represent the majority of voters, delaying the retirement age is political dynamite.
Delay the age of retirement and link benefit levels to the life expectancy of retiring workers.
Several EU countries, including Italy and Sweden, adjust retirement ages and pension amounts to reflect the average life expectancy. In Spain, the retirement age is being phased up from 65 to 67 by 2027. France’s attempt to raise the retirement age from 62 to 64 — one of the lowest in the EU — sparked widespread protests, leading the government to temporarily pause the reform and bring it in more progressively over a longer period of time.
Delaying retirement
The challenge
The recommendation
Examples
Delaying retirement beyond the statutory age would improve the sustainability of the system, but current conditions don’t make it appealing for people to keep working.
Provide incentives such as bonuses or pension increases if people opt to work longer before eventually claiming their pension.
Deferring the state pension can increase benefits by 4% per year in Spain, around 6% per year in Germany and the U.K., while in the U.S. deferring social security beyond the full retirement age earns delayed retirement credits amounting to 8% per year until age 70.