Much of Belgium was brought to a standstill last Friday as thousands of workers barricaded streets and went on strike over government plans to raise the pension age. The outcry had a resonance well beyond Belgium, however - many countries are seeking to overhaul welfare systems threatened by the need to care for ageing populations.

A report yesterday by the Organisation for Economic Co-operation and Development warns that public finances are in danger of being overwhelmed as taxes from a shrinking workforce will be insufficient to pay for a growing number of the elderly.

The simple answer, it says, is to encourage older people to remain in work longer. Removing barriers to work will require big changes in labour market attitudes and welfare benefits.

All OECD countries are expected to suffer as a result of increased longevity and declining birth rates. Those likely to be worst affected include Italy, Japan and South Korea where more than a third of the population is expected to be over 65 by 2050, compared with about a fifth in the US, Mexico and Turkey.

The projected gap in gross domestic product per capita between the US and other big OECD economies as a result is likely to widen over the next 50 years.

The projected rise in public expenditure to meet the increased bill for pensions and healthcare "will have to be financed either by an increase in social security contributions and other taxes or by a cut in the generosity of benefits," says the OECD.

This may prove difficult to achieve judging by the reaction last week of Belgian workers. Unions in the UK have threatened to stage the country's biggest national stoppage since the 1926 general strike over government plans to raise the retirement age from 60 to 65 for millions of public sector workers.

But raising the pensionable age limit is only part of the problem. Generous unemployment and disability benefit schemes have offset attempts to close off early retirement schemes in countries such as France and Belgium. In France, for example, older people receiving unemployment benefit are not required to search for another job.

The potential loss of benefits and an inability to enhance pension payments by working past retirement age penalises people working longer, with countries such as Austria, Belgium, France, Finland, Germany, Italy and Luxembourg among the worst offenders.

Attitudes of employers and employees towards working arrangements and pay rates that rise with age may also need to be re-examined. "To the extent that labour costs of older workers rise faster than their productivity, employers may be reluctant to either retain workers beyond a certain age or hire older workers," says the OECD.

A number of countries have introduced wage subsidies to reduce the cost of employing older workers but these need to be well-targeted, it says. Increased training opportunities would also allow older workers to develop new skills and improve their marketability. Flexible and temporary working could also encourage employees to stay in their jobs longer.

Raising the birth rate would resolve long-term problems but would increase dependency ratios in the short term as youngsters would need to be educated and kept healthy before they could enter the labor force. More immigration could provide a useful stop-gap but would not resolve the long-term imbalance between increased life spans and lower fertility rates.