Public pensions at risk worldwide: Report

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The world's retirement bill is coming due—and many countries aren't ready to pay it.

That's the conclusion of a report Monday from the Organization for Economic Cooperation and Development, a Paris-based group representing the world's developed countries.

With populations aging and lifespans rising, government-supported pensions are cutting deeper into national budgets, crowding out spending on other programs and services. The added burden comes as the economies of the developed world are growing slowly, putting added pressure on the tax revenues needed to pay rising pension costs.

The solution, according to the OECD report, includes boosting retirement ages, cutting back on early retirement and providing greater incentives for workers to save for their own retirement, including automatic enrollment in private plans.

"The ongoing rapid demographic shift and the slowdown in the global economy highlight the need for continuing reforms," OECD Secretary-General Angel Gurría said. "We must communicate better the message that working longer and contributing more is the only way to get a decent income in retirement."

In the U.S., much of the debate over pension reform has centered on the national Social Security trust fund, which has enough reserves set aside to fully cover its costs until 2027. Congress has debated a series of reforms that would extend the plans solvency, including raising contributions, indexing cost of living increases and taxing benefits.

State and local pensions are in much worse financial shape. A report in September by bond credit rater Moody's Investors Services found that, despite recent gains on their investments, U.S. public pension funds don't have nearly enough money to pay what they owe current and future retirees.

In less than a decade, that shortfall has tripled to at least $2 trillion—more than half of all outstanding state and local bond debt, according to the report.

Read MorePublic pensions face $2 trillion hole: Moody's

Like nearly all retirement savers, state and local pension funds got clobbered by the 2008 financial collapse. But the pension shortfall had been building well before the downturn—and has been made worse by state and local government's shortchanging annual fund contributions. New Jersey, for example, took "contribution holidays" during the Great Recession and more recently has cut payments or just skipped them altogether, Moody's said.

Without reforms, the higher cost of an aging population threatens to stifle long-term economic growth as countries are forced to borrow money to cover their public pension promises. In Japan, where an aging population is experiencing the biggest gains in longevity, public debt is now more than twice the country's gross domestic product. Despite multiple government efforts to revive growth, Japan recently slipped back into recession after two decades of economic stagnation.

Read MoreNew repair manual needed for Japan's broken economy

To better manage the financial risk posed by again populations, OECD officials want government to better communicate that risk to investors by creating a standard, global index. The benchmark would help investors price in the added financial burden of increases in longevity that are often buried in outdated longevity tables and other actuarial statistics.

The group also proposed that governments issue "longevity bonds" to hedge the risk that public pensions come up short in covering the cost of paying out the benefits they've promised retirees.

"Capital markets could offer additional capacity for mitigating longevity risk, but the transparency, standardization and liquidity of instruments to hedge this risk need to be facilitated," the OECD said in a statement.