Aging populations are forcing governments around the world to consider changing their public-pension plans in complex and difficult ways, including shifting from tax-funded, pay-as-you-go systems to funded ones with private accounts. Funded pension plans—already a reality in Sweden and the United Kingdom—are on the table in several other European countries, including Denmark, Hungary, Italy, and Poland. In the United States, private accounts are one element of the Bush administration's plan to overhaul the Social Security system.

Adair Turner has a deeply informed perspective on the economics of pension reform: during the past two years, he has headed up the United Kingdom's Pensions Commission, which has been reviewing the country's experience with the privatization of pensions and recommending modifications to the system. Turner, formerly a director in McKinsey's London office, is also vice chairman of European operations at Merrill Lynch. In his remarks here, he reflects on what private accounts can and can't do. In particular, he notes that unless the retirement age and savings rates rise, any pension system or reform plan will have great difficulty addressing the economic impact of a rapidly aging society.

The Quarterly: What type of public-pension system will cope best with aging populations?

Adair...