It’s become fashionable over the past few years to bemoan the spendthrift West and applaud the soundness of economic policy in emerging markets, particularly Asia.

But what if a lot of the West’s problems, and the East’s rise, have as much to do with demographics as with decision-making? And what if the West’s welfare states are less a conscious, ideological choice, and more a universal reaction to those demographic trends? And what if Asia is going to have to face the same changes, but is far less prepared?

A new study from the Organization of Economic Cooperation and Development on the woeful state of pension regimes across Asia highlights the danger that complacency in this region threatens to undermine much of its economic growth ‘miracle’.

The OECD notes that the demographic transition of fewer babies and longer lives took a century to play out in Europe and North America, but it will take but a single generation in most Asian countries.

In some places, such as Japan, Hong Kong and Singapore, the shift has begun. In other countries, such as China, Pakistan, South Korea and much of Southeast Asia, the shift will occur over the next two decades.

Looking at Europe and American states today, with their bloated public service sectors and crazy levels of debt, it’s easy to criticise welfare states as pampering to powerful unions and a post-war generation spoiled on wealth.

Asian leaders such as Lee Kwan Yew and Hong Kong tycoons are proud of their capitalist states, with or without dirigisme, but certainly without welfare (and the high taxes that go with it).

But the fact is that a huge number of people in these societies are on the cusp of getting very old, without enough financial protection, and without the old family structures that until now have supported the elderly.

As the OECD notes, current pension systems in Asia won’t deliver economic security for most retirees, because coverage is low, too often people can withdraw savings before retirement, savings are delivered in lump sums, and because there are no formal mechanisms to adjust payments to reflect changes in the cost of living.

Says the OECD: “Asia’s aging will be at its most rapid between 2010 and 2030. Given the long lag in pension-policy planning, there is now a narrow window for many Asian economies to avoid future pension problems and repeating many of the mistakes made in Europe and North America. But it will soon be too late.”

Among the OECD’s recommendations, top is to end the practice of paying benefits based on final salaries. In the West, payments are calculated on the basis of average lifetime salaries.

Final-salary arrangements mean the higher-paid people, whose earnings will typically rise faster with age, receive a bigger portion of available assets, effectively redistributing money away from poorer people with steadier salary levels and depleting the savings pool.

The OECD is also critical of lump-sum withdrawals to beneficiaries upon retirement. These arrangements mock the idea of a ‘pension’, which is meant to be a regular payment; and the large size of a lump sum often fools people into believing they are wealthy, when in fact they need to live off the sum for 20-30 years. Without an annuity programme, people with little financial literacy are also then required to save and invest on their own.

Finally, only two countries in the region, China and the Philippines, have automatic indexation of pensions to reflect price inflation and wage growth. The West learned of the need to build in such protections after the 1973 oil shocks sent prices skyrocketing. Asian governments should heed this lesson instead of waiting for a crisis of their own.

There are a few cases in Asia where coverage is higher than average, based on comparisons with countries with similar income per capita. This includes Sri Lanka and Vietnam. Coverage in most countries, including China, India, Pakistan and Thailand, is poor, given the level of their economic development. Worse, there is little or no protection for people who aren’t accounted for in formal schemes, such as the self-employed or the masses in India’s ‘unorganised’ labour workforce.

Without instituting meaningful pension systems, there is no way Asian countries will be able to protect tens or hundreds of millions of people from old-age poverty. That is not socially tenable or politically sustainable.

For Asia’s emerging markets, only 6% of the population on average is aged over 65 (and up to 8% for China and Singapore). That’s better than it is for OECD members such as Japan and Korea. For developed markets, the population over 65 will increase from 16% today to 27% by 2050. That’s a well-known challenge for European welfare states and America’s entitlement programmes.

But Asia’s emerging economies will see their over-65s grow twice as fast, from 6% to 17% on average. If welfare states are not reformed and improved upon right away, the region faces a fiscal crunch.

Debt levels are already on the rise in some countries, notably Singapore, where public debt is already 102% of GDP. Korea, Malaysia, Taiwan and Thailand are becoming relatively bigger borrowers, in global terms.

These countries cannot sustain the sharp tax increases that will be required if they don’t get their pension systems into shape. The regional giants – China, India, Indonesia – need to make substantial reforms if they are to avoid being overwhelmed by hundreds of millions of impoverished elderly.

The welfare state is coming to Asia. There is no getting around it. The question is to what extent the region’s rulers can avoid the worst mistakes of the Western examples. Failure to come to grips with this will upend national finances, and today’s rosy headlines about sound macroeconomic policy will be a thing of the past.