Worldwide, the most dramatic aging is projected to take place in low and middle-income countries. Traditional family-based care for the elderly has broken down in many developing countries without adequate formal mechanisms to take its place. For the elderly, inadequate transfers from either formal pension systems or from informal family and community transfers can severely reduce their ability to cope with illness or poor nutrition. In low-income countries, only one in nine workers contribute to a pension program. This proportion has remained stagnant for decades, affecting their ability to receive adequate pension benefits.
Public spending on pensions also tends to be regressive, being concentrated on a very small proportion of workers. Too often, the cost of paying for pensions crowds out spending on other deserving programs--- such as health or education programs-- and when payments exceed contribution revenues, cross-subsidies are required from broadly based taxes, such as a value-added tax. In middle-income countries, large gaps in pension coverage exist among lower-income, informal sector workers. This is compounded by demographic pressures straining the ability of pension systems to finance benefits. This is particularly true in transition economies in Eastern Europe and the former Soviet Union, where pension spending is frequently the largest government expenditure, as well as a major source of fiscal deficits, and accelerated aging has reduced the number of younger workers supporting older workers that need pension coverage.
The World Bank is in a unique position to take intellectual leadership and collaborate with various development partners in building strong pension systems in developing countries. The Bank has been involved in pension reform in more than 90 countries and provided financial support for reform to more than 70 countries.