OECD warns developing countries over pension gaps as populations age

10:40

Developing economies are entering a new demographic era, but many of their pension systems are not yet equipped to protect workers as populations grow older. The OECD is warning that rapid ageing, combined with widespread informal employment, could leave millions of older people without reliable retirement income.

In its latest report, Securing Livelihoods for Informal Workers in the Context of Global Changes, the Organisation for Economic Co-operation and Development highlights a growing gap between demographic change and social protection coverage. Unlike the gradual ageing experienced historically by many advanced economies, several developing countries are moving through the transition at a much faster pace.

The challenge is particularly acute because informal employment remains widespread. Workers outside formal employment often have limited or no access to contributory pension schemes, making retirement security dependent on family support, continued employment or other forms of assistance.

Pension coverage remains limited

Across the countries examined by the OECD, only around 51% of people above the statutory retirement age receive a pension. At the same time, just 40% of workers contribute to a pension scheme.

These figures point to a structural weakness in retirement protection. For people who spend much of their working lives in informal employment, reaching retirement age does not necessarily mean leaving the labour market.

Many older workers therefore continue earning an income through informal activities, while others rely on relatives to meet their basic needs. The consequences extend beyond individuals, affecting entire households that may already have limited financial resources.

The OECD argues that expanding pension coverage remains possible even in economies where informal employment represents a substantial share of the labour market.

Emerging economies face an accelerating transition

Several countries are approaching a stage where ageing will become an increasingly significant economic and social issue. The OECD identifies Indonesia, Mexico, Peru, Thailand and Vietnam among economies where there is still room to broaden pension coverage before demographic pressures intensify further.

The timing of reforms could prove particularly important. Establishing broader social protection mechanisms while working-age populations remain relatively large can provide governments with greater scope to prepare for future increases in the number of older citizens.

For countries where informality is deeply rooted, however, expanding traditional contributory pension schemes alone may not be sufficient. A significant proportion of workers may remain outside formal payroll systems, limiting their ability to accumulate retirement benefits through conventional contributions.

Africa has an opportunity to prepare

African countries are generally at an earlier stage of demographic ageing, according to the OECD, giving many governments additional time to strengthen retirement protection.

That demographic window could provide an opportunity to establish more comprehensive systems before the proportion of older people rises significantly. The report points to universal social pensions as one possible approach, particularly where conventional contributory schemes have difficulty reaching informal workers.

Such programmes could potentially be financed through changes to tax systems, with the OECD noting that universal pension mechanisms do not necessarily have to impose a prohibitive fiscal burden.

The issue is especially relevant in economies where informal employment is not a marginal phenomenon but a central part of the labour market.

Informality amplifies wider vulnerabilities

The OECD's analysis goes beyond retirement income. It examines how informal employment affects workers, their families and people who depend on them across 58 developing and emerging economies in Africa, the Americas, Asia and Europe.

The scale of the challenge is considerable: 55% of the population covered by the study lives in households where employment is entirely informal.

This environment can make households more vulnerable to economic shocks because workers may lack access to unemployment protection, pensions, health coverage and other formal safety nets.

The report also draws attention to groups that can face particularly significant risks, including women, low-skilled workers and older people.

Ageing is only one part of a broader challenge

Demographic change is unfolding alongside other global transformations that could deepen existing vulnerabilities. The OECD highlights automation and environmental pressures, including droughts, floods and heatwaves, as additional forces capable of reshaping employment and household livelihoods.

For informal workers, these changes can be especially disruptive. Limited access to formal social protection may leave households with fewer resources to absorb income losses or adapt to changing labour-market conditions.

The OECD's assessment therefore places pension reform within a wider debate about the future of social protection in developing economies. Preparing for ageing is not simply a question of increasing pension payments; it also involves extending coverage to workers who have historically remained outside formal systems.

As demographic transitions accelerate, governments face a narrowing opportunity to build stronger retirement systems before ageing places greater pressure on public finances and household incomes.