IMPACT OF PENSION REFORMS ON SAVINGS INVESTMENT AND GROWTH

Dr. H. Sadhak
Director, Management Development Center Life Insurance Corporation of India

Impact of Pension Reforms on Savings, Capital Market and Growth - Some lessons for India. Introduction
The debate on Social Security Reforms has taken the center stage in developed and developing countries as one of the most critical policy issues . The policy makers and researchers intensely debating for an appropriate mechanism to confront the complex issues related to demographic burden owing to ageing, growing inability of the government to finance unfunded pensions, pressure on government budget due to increasing costs of retirement benefits. Pension Reforms, have therefore become a hot pursuit for planners , policy makers, market analysts. A new dimension has been added to the search of a solution for the problems of old age security due to the gradual dismantling of the concept of Welfare States in the emerging market economy sharking of the responsibility of social assistance and passing the responsibility to the individual . In the new world , economic security of its members is no more the sole concern of parental state and the of economic restructuring advocates passing the same to the private enterprise. Like many other areas of economic functions, pension has also becoming an area dual control by public as well as private sector, through the process of reforms. An intense demand, fervent appeal and lots of leg work is going on to open up this sector, and allow private initiatives. There are several arguments, some are positive some are not so positives. There are a variety of models suggesting pension reforms. A large number of such models centered around the arguments of privatising pensions and passing the funds management to private asset managers through introduction of funded defined contribution system .

Paper presented at the Inaugural Global Symposium on Pensions held at the National Insurance Academy, Pune. The author would like to acknowledge the valuable research assistance provided by Partha Sadhak, Postgraduate student in Economics, University of Bombay. Views expressed in this article are personal views of the author.

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Impact of Pension Reforms on Savings Investment and Growth

India is not an exception to this pension dilemma and debate. Many arguments are forwarded, some are borrowed from the experience of economies and capital markets which do not satisfy our needs and conditions. But, the fact is that reforms are overdue and to be carried out before problem explodes. The question is what can be the most appropriate model for India taking into account unique social, cultural and economic condition what should be the appropriate pension management structure for India. OASIS report has critically examined the many crucial issues relating to pension reforms in India and has strongly recommended privatisation of Indian of Indian pension system keeping the much lauded Chilean Pension model . This article is not a critique to OASIS model but an attempt to examine what the impact of Chilean type reforms on Savings, Capital Markets and Economic Growth . Ultimately these are the major influencing factors of economic growth determining sustainability of any economic programme . Keeping the core issues of discussions , we have , in brief touched upon the salient features of pension reforms and o ld age security system in Chile and some other Latin American Countries (LACs). At the same time , we have also examined the system of old age pension in some countries which have successfully promoted alternative old age security system , while achieving significantly higher growth rates in national savings and growth rates with emerging capital market . Three such countries are Sweden , (Notional Defined Benefit system ), Singapore , (CPF) and Malaysia (EPF) Pension system , prior to reforms in many countries were basically publicly managed defined benefit type, financed through pay roll taxes and organized around certain predetermined formulas .Post retirement pension based on the history of employment earnings. The switch over that are taking place through reforms are the move towards defined contribution system organized around employees contribution rate and flows of retirement pension determined solely by the history of individual contribution . The defined contribution system is fully funded system financed solely by the individual unlike un funded pay as-you-go (PAYG) system under defined benefit system. Defined Benefit (DB) System has been criticized on the ground that the system impose burden on exchequer, generates unemployment, weak in resource allocation ,does not provide boost to long term savings, and capital market development and impede the growth of economy. Whereas on other hand, defined contribution (DC) managed through the individual contribution provides freedom of choice to the individuals, provides better return due to competitive funds management, enhance the growth rates of national savings, reduce the burden on exchequer due to less public expenditure on pension spending and finally generates momentum of growth in Economy. These are very strong arguments in favour of DC and many countries particularly many Latin American countries have switched over from partially funded DB system to fully funded DC system following the experiment of Chile in 1981. Most of these countries have replaced PAYG by the fully contributory system.

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Impact of Pension Reforms on Savings Investment and Growth

The switchover to new pension model has also encouraged to replace single pillar system as mentioned by Estelle Jame,(1998). These new arrangements contain three pillars : A mandatory, publicly managed tax financed pillar for redistribution. A mandatory, privately managed fully funded pillar for savings. A voluntary pillar for people who want more protection in their old age. The first pillar resembles existing public pension plans but it is smaller and focuses redistribution provide a social safety net for the old, The second pillar links benefits actuarially to contribution as in the defined contribution plan,This pillar is fully funded and privately and competitively managed. The third pillar, voluntary savings and Annuities offers supplementary benefits who want more generous old age pension (Estelle James 1998). Another important element of newly reformed pension system is the introduction of Individual Accounts , can be called the heart of the defined contribution private pension fund system . Individual Accounts are expected to provide workers ownership claims on a particular mix of financial assets, and linking the future benefits to the size of the assets. The important reasons cited for Individual Accounts are: improving the over all performance of economy, increasing the overall rate of return, allowing individuals to assume greater responsibility for their well being reducing current implicit Government Liabilities, and more closely linking benefits to contribution (Lawrence H. Thompson 1999) The most important feature of the newly reformed pension system the key role of private funds managers who have replaced states as the fund managers . Private fund managers are considered to be more efficient and able to provide better return. These private Fund Managers in Chile is known as Pension Fund Associations (Associaciones de Fondos de Pensiones or AFPs), which managed the individually deposited 10% in Investment Funds.Defined contribution in Mexico is managed by privately operated pension fund manger called AFORES (Administradoras de Fondos para el Retrio). The specialized fund mangers who manages defined contribution part in is called AFJPS in Argentina and they are called AFAPS (Associacions de Fondos de Ahorro Previsional) Uruguay These specialized fund managers invest the money purchase retirement benefits and conducts reporting and disclosure according to the regulatory norms, and their investment strategies conform to the investment guidelines, formed by the respective regulators. Pension Reforms in Latin American Countries There is no uniform pension model and each country has adopted its own pension system depending on social-political and economic needs and circumstances. However, in course of time distinct trends have emerged among the group of countries which can be clustered around few models. And there are Latin American models following the

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Impact of Pension Reforms on Savings Investment and Growth

reforms in Chile, there are OECD models adopted by developed nations, there is Swedish model and there is Singapore -Malaysian model centered around Provident Funds Systems. Latin American Model is basically privatised defined contribution model under which each worker chooses his or her investment manager to m anage defined contribution Retirement Account. In LAC model, first pillar is mandatory contribution relatively smaller than the defined contribution second pillar. OECD model is basically an employer employed based model where investment manager/s chosen by employer or Group of employers. The Swedish model based on the PAYG system called Notional Defined Contribution, having individual accounts of workers that is credited with capital and interest. Singapore and Malaysian model is basically mandatory defined contribution Provident Fund Schemes. Publicly and centrally managed. Though Latin model is the most discussed model and emerged as the market based ideal privatized model, but the Swedish and Singapore models have silently impacted Social Security System relatively better than Latin American models. It can be seen from Table 1 that Pension contributors as % of Labors was much higher on Sweden (91.1%) and Singapore (73%) than in Chile (70%), and other Latin American countries. Similarly, the public e xpenditure as % of GDP was 11.4% in Sweden, 1.4% Singapore and 1.0% in Malaysia as against 5.8% in Chile 15% in Uruguay 6% in Argentina 0.4% in Mexico. However, even among Latin American countries, there are differences in contribution rates, nature of benefits and administrative mechanism. (Table : 1 ) The second generation reforms countries like Colombia, Uruguay, Argentina, Mexico, Bolivia made many departure from Chile e.g only in Mexico the new system is mandatory for all private sector workers in o ther countries it is voluntary. In Uruguay and Argentina Pension System is mixed. Public PAYG and privately managed funded pillar. Bolivia has adopted a unique model linking private pension reforms with privatization and capitalization of state enterprises. Some of the salient features of LACs Pension reforms discussed below.

Chile Chilean Pension Privatisation Programme had set the trend of pension reforms in Latin America which had gradually emerged as the Latin Model and many countries of the world importing them to set right their pension system. In 1981 Chile replaced its PAYG public system by a mandated contributory and privately managed pension system. In the new system, pension of Chilean workers must contribute 10% of pay to their pension account and may voluntarily contribute 10% more. These funds are managed by private companies known as Pension Fund Associations (AFPs) specially created for pension fund management and regulation. Reforms in Chile based ontwo Pillars mandatory system namely : Publicly managed first pillar , and

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Impact of Pension Reforms on Savings Investment and Growth

privately managed second pillar. Employers pay roll tax was abolished Whilethe first pillar provides 25% of average pay as pension, second pillar pay out used for purchasing programmed annuity. The Chilean P ension system incorporates two kinds guaranteed benefits namely (a) rate of return earn on the accounts each year will be atleast 50% of the average of return earned on all pension fund accounts or (b) the average return less than 2 percentage points. I n Chile, workers can choose only one AFP at a time and annuity provider. However, they have no say in selection of investment within AFP.Chile has liberalized pension fund investment and pension funds are allowed to invest upto 37% funds in equity, upto 45% of funds to be invested in State Securities.The system once hailed as panacia for all disease afflicting unfunded pension system , has been gradually coming under criticism with not so satisfactory performance during recent times .

Peru Peru was the first country to follow Chilean Pension reform and established a public private pension system in 1993. Reforms in 1993 introduced a voluntary funded contributory second pillar as a part of the system, while the mandatory publicly managed PAYG remained intact. This second pillar optional funds are managed by private fund managers called AFPs. Peruvian workers contribute 10% of their wages to the Retirement Account, employers pay roll tax was abolished

ColombiaColombia introduced its pension reform in 1994 with an optional a privately managed second pillar but the old PAYG system remained in place. It allowed workers to opt for investing 10% in retirement savings account. The new Colombian Pension System offers minimum pension guarantee. The private system is taxed under solidarity contribution of 1 percent deducted from the workers earnings, while old system is overseen by the Social Security Institute, new system is managed by AFPs.Employer pay roll tax was fixed 10% / 7.5% and employee pay roll tax fixed at 3.5% / or 2.5%. First pillar benefits include 55% of average pay and the second pillar provides programmed annuity out of the pay out Another important feature of Colombian System is the guarantee for minimum pension. A unique feature of Columbian System is the right of employees to switch back and forth between old and new system.

Mexico
Mexico introduced pension reforms in 1997 and like Chile totally eliminated PAYG system. Reforms also introduced minimum pension guarantee for low income workers and gave an option to retire under the old system or to transfer their accumulated balance under new system. The new mandated fully funded system introduced Individual Retirement Funds called SIEFORES, which are administered by Investment Management Funds AFORES, established by private sector. Employees pay roll tax fixed

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Impact of Pension Reforms on Savings Investment and Growth

at 6.5% of salary, while employee pay roll tax was abolished .Mexico also introduced a very high retirement benefit 40% from first pillar. Under the new system, individual retirement account composed of two compulsory SubAccounts, RCV sub-account managed by AFROES and INFONAVIT sub account. A third sub-account is also there which is voluntary. By the end of April 1998, there were 17 AFORES.

Argentina
Argentina introduced a new Pension System in October 1993 which became operational in July 1994. This new structure has two compulsory pillars. The first one is unfounded and run by state, which offers a Universal basic pension called PUB to all workers Social Assistance Pension and also pays compensatory pension to all new retirees operated on a PAYG basis. The second pillar has two components a defined contribution plan with individual accounts managed by specially authorized management companies (AFSP) and an unfounded component(PAP) for workers who prefer to stay with state run defined benefit plant(Dimitri Villas 1997). In Argentina only specialized companies are authorized to manage pension funds, workers can have only one amount each company can only operate one pension fund is requested to change the same prices and commission to all its official .Investment regulation designed to avoid risks through diversification. Accordingly 50% of funds to be invested in Govt. Bonds, Maximum investment in equities and Corporate bonds is 35% and 28% respectively.

Uruguay
Uruguay undertook a limited Social Security Reforms in 1995 and instituted a Mandatory national system for paying regular retirement benefits, survivors benefits, extreme old age benefits and disability benefits in Uruguay (Olivia S. Mitchell 1996) Uruguay, however , retained PAYG and allowed a portion to divert into retirement savings accounts. The new system based on two pillars a welfare or solidarity pillar and a mandated individual pillar . The first pillar provides a retirement annuity and the second pillar based on Mandatory individual pension contributions invested by an AFP. The first pillar benefit depends on pay and service benefit to minimum and maximum levels. Uruguay system is a Public -Private combination, while pay roll taxes collected by Government, Capital accumulation and benefit payments are handled by Private Pension Funds and Insurance Companies. Pay roll taxes collected by Direccion General Imposition (DGI), send to Banks de Prevision social (BPS) who in turn forward to AFPs for investing. All AFPs are required to 100% funds in Govt.securities initially and 60% in the long run. The net real return of AFPs should not fall below 2% per year. Uruguay has laid down a strict investment requirements for pension fund investment. Initially 100% in Govt.bonds Min.60% , Max 20% in Uruguayan Corporate or Public Stocks.

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Bolivia
New Pension System introduced by Bolivia in 1997 based on Individual Capitalisation Account. The reform also established a social programme (Bonsol) designed to provide old age relief and financed by the shares of capitalized enterprise. (Gersdorff 1997) Each member pays 12.5% of salary as contribution Capitalisation Funds, managed by fund administrator (AFP). This 12% includes 10% towards long term capitalization, 2% insurance premium and 0.5%, AFPs Service. All participants over 65 years receive Bonsol annuity. All the contributors to the earlier pension system were transferred to the Individual Capitalised Account and AFPs were entrusted with the responsibility of collecting contribution. AFPs also entrusted with the responsibility of managing Bonsol Funds.

Bolivian Pension System linked with Capitalisation Programme. Capitalisation shares transferred into a fund called FCC managed by the AFPs and all eligible Bolivians are owners of FCC and will be benefited through Bonsol Through Bonsol programme Bolivia set up a Universal old age income support equivalent to about 27% of Bolivias Per Capita Income. Pension Reforms Countries with Alternative System
While most of the Latin American Countries followed the Chilean model and privatised pension System with a greater role of private fund managers , some other countries followed the path of partial privatisation with predominant state roles in managing pension and old age security system their system eg Sweden retained its PAYG system with the introduction of Notional Defined Contribution ( NDC) , Singapore allowed private fund managers to manage Individual Accounts in a limited manner of Central Provident Fund , while Malaysia also allowed Private Fund Managers to manage individual accounts keeping the larger amount of funds to be managed by Employees Provident Organisation (EPF ).And all these countries achieved significant success . We would discuss salient feature of pension system of these countries.

Sweden
Sweden has introduced social security reforms in 1998, but the new system basically remained as PAYG Sweden introduced a powerful concept called Notional DefinedContribution (NDC) Scheme. Under the new system, pension will be based on money accumulated in two separate accounts. Overall contribution 18.5% will be paid in equal proportion, 9.25% each. Out of 18.5% pay roll tax 16% goes to Govt to finance existing retirees, This individual account is created with earnings on the basis of the per capita wage growth in Sweden. Remaining 2.5% goes to the second individual account, which is invested in real assets and upon retirement, this amount is converted into annuity .The monies in the second account invested in low risk instruments and supervised by the

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Impact of Pension Reforms on Savings Investment and Growth

Centralised public agency called Premium Pension Agency (PPA) . The NDC attract national interest and a persons retirement based on national lumpsum at retirement. Thus Sweden has a defined- contribution Scheme with a safety net. It is publicly organized, PAYG analogue of Chiles privately managed, competitive individually funded arrangements. Either method gives people choice (Nicholas Barr 2001).Pension reforms in Sweden is not drastic as in case of Chile and other LACs but well designed and highly acceptable to the workers . The reforms , inspite of partially privatising the pension system has taken care of the safety aspect through the centralised publicly nd managed 2 individual account which is invested in real assets . The changes Are noteworthy and beneficial which provides greater incentives to work , increased national savings , flexible retirement age , lower taxes , less Government spending , fairness and more retirement income . ( Goran , Norman and Daniel J Mitchell 2000) The Second Generation Pension Reforms: Main Features of the New Models
Chile State of operations Public PAYGO system Private funded system Affiliation of new workers Is current labor force allowed to remain in old scheme ? Can Workers switch back to public system ? Recognitio n bonds 1981 Closed Peru 1993 remains Colombia 1994 remains Argentina 1994 Remains Uruguay 1996 remains Mexico 1997 closed Bolivia 1997 closed

Mandatory

Voluntary

Voluntary

Voluntary

Voluntary

Mandatory

Mandatory

Yes

Yes

Yes

Yes

---

No

---

No No (After June 1996) Yes Yes

Yes, every three

No

No

No ----

Yes

Yes

Yes

No

-----

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Impact of Pension Reforms on Savings Investment and Growth

Contributio n rate for savings (% of wages) Disabil./sur vivors/adm .public pillar and soc.assistan ce. Disability/s urvivors insurance Commissio n+Insuranc e(% of wage) Contributio n collection Past contributio ns Estimated implicit PAYG debt at time of reform(as % of GDP) Minimum Pension Fund Manageme nt Companies . Minimum rates of return of private pension funds Governme nt Guarantees on rates of return of Pvt.Pensio n Funds Maximum percentage of portfolio allowed in ; Domestic

10

10

7.5

7.5

6.5+subsid y

10

3 general revenues

13 3 1

3.5 1

3 16

3 16

4.0 General Revenues

------

Private 2.24

Private 3.72

Private 3.49

Private 3.45

Private 3.45

Public 4.42

Private 3.00

Decentraliz ed RB

Decentrali zed RB

Decentralize d RB

Centralized CP

Centralize d CP

Decentraliz ed Life time switch 141.5%(in 1994) (through 2069)

Decentrali zed CP

126%(in 1980) (through 2030)

37% (terminati on liability)

61.6%(throu gh 2.25)

N.A.

N.A.

------

Yes AFP

No AFP

Yes AFP

Yes AFJP

Yes AFJP

Yes AFORES

No AFP

Benchmark ralative to market average

None

Benchmark relative to synthetic portfolio

Benchmark relative to market average.

Benchmar k relative to market average.

None

---------

Difference between balances at retirement and MPG

(Differenc e between balances at retirement and MPG

Difference between balances at retirement and MPG

None

None

Difference between balances at retirement and MPG

30 10 45

35 5 40

30 15 50

50 10 50

50 10 50

0 0 100

----

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Impact of Pension Reforms on Savings Investment and Growth

equities Foreign securities Govt..secur ities (in 1994) Transition cost as % of GDP

(in 1997)

100-80%

27%

na

87%

na

80%

-----

Source : Gloria Grandolini (1998) , Mitchell, Olivia ( 1997)

Singapore
Singapore has developed a mandatory fully funded scheme based asset accumulation by its members through individual accounts. This publicly managed pension system financed through private savings which operates through Central Provident Fund,(CPF). In developing such a system, Singapore policy makers have shown considerable ingenuity in adapting the CPF System to much needs not by the Government in other countries (Mukul G. Asher 1995) Most citizens of Singapore are members of CPF and contribute 40% of their wages up to $6000 per month. Deposits are made both by employees and employers but the account belongs to employees. Each member maintains three accounts with CPF Board. Ordinary Account - ordinary account used for housing, approved investments, insurance, education loans. Medisave Account -Medisave Account used for hospitalization expenses, medical insurance etc. Special Account used for old age security and contingencies As at the end of June 2001, interest rates of Ordinary Account , Medisave Account and Special Account was 2.5% , 2.5% and 4% respectively . According to investment norms, CPF funds invested in Govt.bonds and in advance deposits with Monetary Authority of Singapore. In 1994, 85.3% of funds invested in Govt. bonds and 14.8% in advance deposits. Monetary authority hires foreign fund managers and since 1995 there are 157 asset management firms in Singapore. In 1995, CPF Investment Schemes were reformed and members were allowed to invest Special Accounts in low risk financial instruments suitable for retirement savings . However , CPF members can invest in funds offered by approved investment advisors . The most preferred are Insurance linked and Investment linked insurance products .However , the performance of the private fund managers are not that encouraging During 1998-200 , 64% of Unit Trusts and 67% of Investment Linked Products providers posted positive return , while 36% of Unit Trusts and 33% of Investment linked Products Providers posted negative return against the bench marks.

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Singapores CPF System has been quite successful in providing basic needs and social security for its citizens. About 82% of the resident population of Singapore live in owner occupied flats and about 27% CPF account holders take the benefits of their accounts to pay for housing. CPF has also run on a very low cost basis, and the system is responsible for generating a very high rate of national savings. Concerned about the pre retirement withdrawal, Singapore Government has introduced a new scheme called Supplementary Retirement Scheme (SRS) in 2001 , under which employees Singaporean and permanent resident can contribute up to 15% of their annual income. Singapore Govt. has adopted a paternalistic new by using provident as the primary instrument of Social Security in an affluent, rapidly ageing society .. corporatist view of state as said by Prof.Mukul Asher (1995), Asher Singapore policy makers have shown considerable ingenuity in adopting the CPF System to meet needs not by Government in other countries. Prof.Asher further commented the first lesson Singapore teaches is that each nations Social Security System needs to be consistent with its social political environment and its need to compete economically.

Malaysia
EPF is a mandatory and centralized managed social security organization, which covers old age benefits, apart from health and housing benefits. EPF is a social security organisation providing old age benefits, employment injury (Socos) health care etc EPF is a contributory Fund both employees and employers contribute a percentage of salary. Employers contribution accounts to 12% of salary while employees contribute 11% of their wages respectively. Employers and Employees can however contribute higher amounts. EPFs primary members are however, private and non pensionable public sector employees.Each members account has 3 sub accounts. Account 1 : For retirement purpose at age 55. Account 2 : For housing- withdraw at 60% age 50, 30%. Account 3 : Health & Medical cost 10%. EPF Funds are managed by EPF Board under the investment guidelines. At Least 70% of EPF Funds invested in Govt. securities. Funds are also allowed to be invested in equity. The dividend rates of EPF are mostly above 7%.Although an in house department manages the bulk of Malaysian EPF assets, some are also managed externally. The Fund has allocated $1.5 billion in Chunks that range in size from R50 million to R100 million across 11 firms including three joint ventures between foreign and Malaysian firms. Since 1996,EPF members of Malaysia can make investment decisions for 20% of assets over R50000 in the retirement portion of their accounts The operational costs EPF though the rate of return is low the (Tina Ruyter 1998)

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Impact of Pension Reforms on Savings Investment and Growth

Some observations about Latin American Reforms Transition Cost :

Transition from PAYG to privatized fully funded contributory involved huge social cost and it is estimated that Employers and Workers will need to pay and additional combined contribution of 1.5 percent of taxable pay roll until 2070. The treasury would have to borrow amount each year to pay the benefits that would otherwise have been paid by the workers 5 percent contribution. (David Langer 1998) In terms of GDP intrinsic costs of pension reforms in Chile calculated as 100-80%. Similarly the transition costs is 80%in Mexico, where the second pillar was also only private. Transition costs was however lower in countries with Optional Public / Private 2nd Pillar as in the case of Peru (27%) , . It was nil in Argentina and Uruguay. However cost very high in Colombia (87%), which has issued Recognition Bonds

Administrative / operating costs

Cost effectiveness considered being the essence of efficiency in administration. But it seems the Reformed Pension System in Latin American countries are being run at a higher cost when compared with other countries. One time front load fee of private fund managers shows that the commission as % of covered pay (1997) was highest in Argentina (2.410%), followed by Chile (2.291%), Peru (2.294%) Uruguay (2.070%) and Mexico (1.191%). It has been mentioned by Olivia A. Mitchell (1996) that the Social Security Administration cost as % of Benefit expenditure in 1994, was 2.3% in Argentina, 21.39% in Bolivia, 8% in Chile, 23.55% in Mexico, 130.98% in Peru and 6.51% in Uruguay, while the LAC average was chose to 28%. This cost was much higher when compared with 4.04% in Sweden, 1.79% in Japan, 3.28% in USA and 3% average in OECD nations as a whole. Operating costs in Argentina excluding the amortisation of deferred cost declined from 74% of average assets in fiscal 1995 to 23% in fiscal 1996. In relation to contribution operating costs declined from 27% in 1995 to 22% in 1996 and 21% in 1997(Dimitri Vittas). Clive Gray and David (1999) also mentioned high administrative commission charged by the privately managed Pension Funds during 1997-98.Administrative Commission as % of wages was 3.14% in Peru (May 1998), 2.80% in Colombia (March 1997), 2.11% in Chile (May 1998) 1.33% IN Mexico (July 1997), 0.53% in Bolivia (May1997) and 0.10-0.21% in Sweden (1999). Singapore System considered to be a low cost system. Operating cost of Singapore CPF in 1990 as a percentage of annual contribution was only 0.53% as compared to 1.99% in Malaysis and 15.4% in Chile.

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Investment Return :
Experts have also pointed out that the privatized pension system in LACs runs on very high management fees but offered very low return. According to Steve Idemoto(2000) although the average rate of return on individual accounts from 1982 to 1986 was 15.9%, the real return after commission was just 0.3% the returns between 1991 and 1995 averaged 12.9%, but management fees lowered the return to 2.1% . In 1994, more than half of AFPs incurred losses. Between 1995 and 1798 returns were 2.5%, 3.5%, 4.7% and 1.1% respectively in Chile Pension Funds in Argentina achieved a high level of investment return of 13% in Normal terms in fiscal 1995 and allowing 2.7% inflation real return was 10%. By March 1997 average nominal rate of return was 22% and with 2% inflation real return estimated to be close to 20%. It can therefore be observed that privatized pension funds particularly which are run by private fund managers plagued by high costs and low returns The transition costs are relatively higher in fully privatised countries like Chile and Mexico. Fund management performance by privatised fund managers is also not very encouraging not only in LACs but also in Singapore Reforming Pension System in India Like other countries India is also confronted with the problem of growing ageing and according to some estimate number of Indian over 60 will grow from 76 million in 2000 to more than 218 million by 2030. Social Security System that prevails in India has not been very effective too provide coverage to the existing population as well as to confront the challenges emerging due to ageing and fiscal constraints. A serious thought and debate is going in India to revamp Indian Social Security System, and to put in place mechanism of Social Security. Present system of Social Security in India based on 3 components, namely; Compulsory contribution, Tax Preferred Voluntary Contribution, and Social Assistance. Compulsory component includes Employees Provident Fund (EPF), Employees Pension Fund, and Central Service Pension Scheme to the Government Provident Fund, Special Provident Fund. Tax Preferred Voluntary component includes Public Provident Fund (PPF), Superannuation Plans and Personal Pensions and Special Assistance Component include, State level Social Assistance and National old age pension scheme. The Employees Provident Fund Organisation (EPFO) managed employees Provident Fund Scheme 1992, Employees Deposit Link Insurance Scheme 1996, Employees Pension Fund 1995, under EPF Schemes.

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Impact of Pension Reforms on Savings Investment and Growth

Out of total work force of 400 millions EPF cover 26 million members and the other mandated Provident Funds covered 2 million, EPFO administered the EPF collects monies and maintains records, invest funds according to government guidelines. By the end of March 2000, the share of PF& Pension Funds in gross household financial assets stood at 23.1% and interms of GDP it was 2.8% , next to the share of Banking sector. According to the information provided in the Annual Report 1999-2000 of the Employees Provident Organisation , by the end of March 2000,EPFO covered 245.37 lakh members under 326541 establishment .Progressive contribution under Employees Provident Fund, Employees Pension Fund and Employees Deposit Linked Insurance Fund stood at Rs 75205.30 crore , Rs 4166.78 crore and 129.46 crore respectively . Government sponsored schemes for old age income security in India
Compulsory Progra m Employ ees Provide nt Fund Employ ees Pension Fund Civil Service Pension Scheme Govern ment Provide nt Fund Special Provide nt Funds Legal Coverage 1 Employees in firms with more than 20 employees Same as above with some exemptions Civil servants at state and federal level Civil servants at state and federal level Effective Coverage 2 About 5.8 percent of the labor force About 5.4 percent of labor force About 3.5 percent of the labor force Most civil servants Financing Employer employee contributions Employer, government contributions State or Central government budgets and

Employee Contributions

Certain occupations and employees in Jammu and Kashmir Voluntary , tax-preferred Public All Provide individuals nt Fund Superan All nuation employees plans Personal All pensions individuals

About 0.5 percent of the labor force

Employer employee contributions

and

About 0.8 percent of the labor force About 0.2 percent of labor force About 0.2 percent of labor force

Contributions Contributions

Purchase of annuity like products

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Impact of Pension Reforms on Savings Investment and Growth

Social assistance State level social assistance National Old Age Pension Scheme

Varies state

by

Varies state

by

State budgets

Destitute persons over age 65

About 15-20 percent of population over 65

Central budget

Source :India: The challenge of old age security, World Bank. Notes :1. Legal coverage for EPS/EPF extends to 177 types of establishments.2. Effective EPS coverage refers to subset of EPF members. Progressive investment by EPFO during 1999-2000, stood at Rs 79248.81 crore for Provident Fund , Rs 2741o.13 cror for Pension Fund , and Rs 277.48 crore for Deposit linked Insurance . The rate of interest declared under EPF during 2000- 01 was 11% as against 12% in 1999-2000. According to some estimate total funds in the Pension Fund Sector in India by the end of March 1996 was estimated at Rs.1283 billion (about around 11.7% of GDP) EPF 1952 is the adjust among all schemes which accounts for 46% of total funds inflow to the sector. The rate of contribution under EPF varies from 8.33% to 10%. The EPF funds under Central Provident Fund Commissioner, which invest the funds through State Bank of India according to the stringent Government Guidelines. According to the government norms minimum 40% will be invested in Central and State Govt. bonds, 40% in Securities of Public Financial Institutions, Public Sector Enterprise, Banks etc. and 10% can be invested in the rated Private Sector Bonds.

OASIS Recommended for Reforms

The committee on old age Social & Income Security (OASIS) has recently submitted a report to the government suggest drastic changes in the structure of Pension Funds. OASIS has focused on transforming Indian Pension System from defined benefit to fully unfounded defined contribution system. In order to encourage larger accumulation and annutisation, improving the rates of return by liberalizing investment and hand over funds to Private Asset Managers. The important recommendations of the OASIS include; Introducing the concept of Individual Retirement Account9 IRA) for each member who will accumulate assets into this account by contributing minimum Rs.500/- in the year, putting in place Points of Presence(POPs) it will be located all over India and where member can transact his IRA Account. But most far reaching suggestion of the committee is the entry of Private Funds Managers. As per the recommendation, Pension

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Impact of Pension Reforms on Savings Investment and Growth

Funds would be managed by Professional Pension Funds Manager (PFMs) to be selected for the purpose. PFMs would over 3 styles of funds, namely; 1 .Safe Income , 2. Balance Income 3 Growth The Committee has also suggested Minimum Guarantee Safe Income Portfolio fund managers must give guarantee that they would not under p erform less than 2% of weighted average return of all managers .The recommendations also include Contribution Protection Insurance, provision for individual choice. While recommending reforms of EPF, OASIS committee has also suggested : introduction of single set of benefits , abolition of 1.1% Govt Contribution, professional management of Funds etc. In its recommendation of Reform of Public Provident Fund, the committee suggested introduction of a new PPF, withdrawal of new PPF at the age of 60 years , professional management of funds ,liberalised investment management guidilines , etc.Other recommendations includes reforming the Govt. Pension Scheme , introduction of National Senior Citizens Fund. The committee has suggested investment norms and accordingly investment in government paper would vary from 25% to 50%, Corporate Assets 30% to 25%, and in domestic equity 10% to 50% depending on the nature of the scheme. They also proposed investment in International Equity. It seems from the analysis of the recommendations that the report has strongly favoured Chilean type condition in Indian Pension Fund Sector. By introducing individual component and bringing private managers for managing the funds.

Impact of Reforms on Savings Investment and Growth -Latin America Unfunded PAYO system of Pension suffers from many in built weakness, benefits are disproportionate to contribution, inequitable and distribution is uneven, low rate of return, pressure on state for finding. etc.The system also criticized as an impediment to Growth of savings, investment and economic growth. Pension reforms directing to replace PAYGO system by mandatory Defined Contribution and management of Individual fully funded accounts by private asset managers considered to be a medicine for the disease. It has also been argued that privatization of Pension would establish a close links between contribution and benefits and would remove the Labour market distortions and would exert positive impact on national savings and economic growth. High pay roll tax in PAYG system injects inefficiency in labour market and productivity growth is hampered. But funded Defined Contribution removes these impediments and Labour participation and productivity improves. Increased Labour productivity provides boost to economic Growth.

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One of the strong arguments for pension reforms is that it increases national savings, Mandated contribution through Defined contribution and Individual Account induced the individual to reduce present consumption and force to save more for old age - In an Un funded Scheme the PAYGO, tax collected from workers and employers in a year transferred to the retiree as pension benefits in the same year. Whereas in a funded scheme, taxes collected from employees and employers will paid into an account and accumulated over the period of time. It is argued that privatized funded pension scheme improve the national savings rates via increased private savings. Privatised Pension System implemented through Funded Contribution also provides momentum to financial marker development through dynamic interaction between pension funds and capital market. Privatised Pension Funds also helps institution buildings by supporting funds management industry, Insurance companies. Privatised Pension Funds also helps promotion of new financial instrument and supply Liquidity to the market. However, savings, investments and growth rates though closely interlinked, yet it is very difficult to asses the degree of co-relation and the extent of influence exorted by privatization of Pension Funds. Growth of savings determined by number of factor like; lacked income organization, aid flow, external terms of trade, public savings etc. A study of Dani Rodrik (1998) shows that savings transition is associated with noticeable increase in both the investment and growth rates. The Author concludes that growth transition tends to followed by significant and sustained improvement in savings performance. We have made an attempt to examine the nature of changes during the post reformed period in some of the Latin American Countries in terms of some important Macro Economic indicators (like growth rate in GDP, domestic savings, investment, capital formation.) , Financial development (like Financial deepening, Stock Market Changes, global financial funds,) and Private Sector Development. GDP growth rate - Growth rates of GDP in some Latin American countries, which have reformed pension system following Chilean Model and also the GDP growth rate in Sweden, Singapore, Malaysia, and India. has been considered to examine the growth effect However, there is no evidence that post reforms, GDP growth rate was better in non LAC countries. In fact, rate of growth rate in Chile after reaching to10.6% in 1995 gradually declined to 4.5% in 2000. Similarly, in Peru, the rate of growth rate of GDP declined from 12.8% in 1994 to 3.1% in 2000. Where as the growth rate in Sweden, Singapore, and Malaysia was more or less maintained during the decades and steadily improved during the last 2 years during 1999-2000 ,except for the year 1998, when Singapore and Malaysia suffered from Asian Crisis.(Table 2) It is argued that mandatory contributory pension reform will decrease consumption and increase in private savings leading to positive growth in long-term savings. However, the study of Latin American countries does not provide any evidence of such assumption.

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In fact house of final consumption expenditure as well as consumption expenditure per capita both have substantially increased during 1990-99 as against 1980-90 (Table). Gross domestic savings as percentage of GDP on the other hand has drastically declined in most of the Latin American countries after pension reform. But it is interesting to note that gross domestic savings as percentage of GDP has significantly improved during 1980-99 in the countries following alternative social security. For e.g. Gross Domestic Savings in Sweden has increased from 19% in 1982 to 22.4% in 1999. Similarly Gross Domestic Savings in Singapore has gone up from 38% to 51.7%, in Malaysia 33% to 20% and in India 17% to 20% respectively. (Table 4) Increase in Gross Domestic Savings is expected to influence the rate of growth of Gross Domestic Investment and Capital Formation. But the evidence indicates that Gross Domestic Savings as percentage of GDP remained more or less static from 21% in 1990 but went upto 28% in 1997 but declined to 21% in 1999. In Columbia Gross Domestic Investment as percentage of GDP declined from 20% in 1995 to 13% in 1999, though the same in Peru Uruguay remained more or less steady. But the countries like Sweden, Singapore, and Malaysia registered significant growth rate in Gross Domestic Investment during 1980 & 1999. In Sweden it went up from 21% to 22%. In Singapore it went up to 46% to 52%. In Malaysia it went up to 30% to 37%. But in India it declined to 21% to 20% (Table 5). However, in respect of average annual growth in Gross Capital Formation positive trend can be noticed in all the countries during the Post Reform Period (1990-99) as against Pre-reform Period (1980-90).(Table 6 ) In order to examine the impact of pension reforms on Capital Market Development we have examined the nature of financial deepening capital, stock market changes and global financials flows subsequent to pension reform. Financial system plays a critical role in transfer savings into productive system through financial market. As economy developed financial assets relative to GDP also grows facilitating growth rate in Macro Economy. In order to examine the financial deepening we have selected important indicators like Domestic Credit provided by Banking Sector as percentage of GDP which is used to measure the growth of banking system. Liquid liabilities as percentage of GDP and it indicate that these countries during the Post Reform period achieved significant financial deepening (Table No.7). Financial Market Development closely related to Stock Market Development and economic growth. A mature economy hastens the process of resource allocation through Stock Market. In order to examine the changes in Stock Markets we have selected three important indicators viz. Market Capitalization as percentage of GDP which indicates the market value, value traded percentage of GDP which shows the condition of liquidity in the market and the turn over ratio of share traded as percentage of market capitalization which is a measure of liquidity as well as transaction cost. Data in the

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Table 8 indicates a significant improvement in Market Capitalization and liquidities in all the countries. Capital markets also got a boost due to the increase in financial assets of pension funds during the post reformed period and the assets of pension funds as % of GDP went up from 0.04% in 1982to 0.43 % in 1993 in Chile , though this was higher in Sweden and Malaysia. (Table 9) Pension Reforms & economic liberalization expected to increase foreign financial flows through increase foreign direct investment and it has been observed that countries of the Post Reform period achieved significant success in attracting foreign direct investment and portfolio investment in Bonds have received a boost after pension system was reformed. (Table 10) Private Sector Development:- We have selected only two indicators viz. Private Fixed Investment as percentage of Gross Domestic Fixed Investment as well as investment in infrastructure projects with private participation to assess the development of private sector in those countries after reforms in the pension sector. So after Private Fixed Investment as percentage of Gross Domestic Fixed Investment is concerned Chile, Argentina Bolivia did achieve considerable success but in countries like Colombia, Urugauy success is not very significant. However reforms in the p ension sector has provided significant boost to investment in infrastructure particularly in Telecom, Energy and Transport Sector in most of the Latin American Countries (Table 11).

Some Further Evidence

Several studies have been conducted and analysis has been made by the experts through out the world to assess the impact of pension reforms in Latin American countries particularly the growth and savings impact Chilean experiments. Experts have expressed different views. But gradually it has emerged that initial success of Chilean reforms could not be sustained over the period of time. We would like to refer some of the major findings here. Pension Reforms on the basis of Multiple pillar has been advocated amon others on the basis of expected Growth effect due to removal of labour market distortions, sustainability of Financial Stability. But as Estelle James (1998) points out Efficiency and growth effects are notoriously difficult to quantify and prove, in part because relatively little experience and d ata are available and in part because even with data it would be difficult to build models that capture all the complex dynamic interactions;" However , some indications are available , mentioned here. Corsetti & Schmidt Hebbel observed Chiles consumption (PC/GDP) declined by 21 percent points from 1971 to 1992, attributed half of it to Pension Reforms cum Financial Market Deepening data table 3 indicates that final consumption expenditure and per

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Impact of Pension Reforms on Savings Investment and Growth

capita consumption increased in the countries particularly in Chile during the later part of reform ie 1990-99 ( Gray and Weig 1999) However ample evidence is available on the impact of Pension Reforms on savings. Hindle and Rondelli (1996) has calculated the impact of Pension Reforms in Chile and observed that 6.6% of 9.9% increase in Chiles savings rate was due to Pension Saving even after considering modest crowd out effect off mandated voluntary contribution. Jeanine Bbailliu and Helmut Reisen , also concluded in their study (1997) based on comparable cross country data over the 1982-93 observed that the development of funded pension does indeed contribute to higher aggregate savings However, opposite views have been expressed by Holzmann (1996)who conclude that during the 1980s the new pension system had a negative effect on national savings However , Holzmann suggest that the conventionally assumed Chilean type pension reform on private (and national) saving may not hold . The suggested alternative casuality is two fold (i) economic growth owing to higher total factor productivity and capital accumulation and better labor market performance is at the heart of the higher private saving rate ; and the increase in the private saving rate is strengthened by higher public saving Regarding the impact of Pension Reforms on Capital Market also the experts have expressed different views . According to Estelle James Financial Markets became more liquid as stock market trades increased; demand was created for the equities of newly privatised state enterprises ; information disclosure and credit rating institutions developed ; the variety of financial instruments grew , and asset pricing improved Holzmann also studied the effects of Pension Reforms and commented that empirical evidence is consistence with the claim that pension funds made the financial market deeper and more liquid Data provided in table 7 , 8 & 9 also supports this view . Conclusion Facts and figures provided from cross section experience indicate that Pension Reforms in Latin American Countries particularly that of Chile did not have much growth and savings effect whereas they have provided boost to capital market development but at a high costs offsetting the gains of capital market development. On the other hand countries like Sweden, Singapore and Malaysia with alternative arrangements and Pension System have registered better growth in GDP, Saving and Capital Markets, which deserve our attention. OASIS Report has made much valuable suggestion but probably with over emphasis on privatization of funds management system. Experience in Chile, Singapore shows that desired cost effective return could not be achieved in those countries. More over our experience with Indian mutual funds is a pointer to this . Funds Management Activism ( Sadhak 2002) ,in Indian MutualFunds Industry is quite known . We must be careful while designing any Pension Model to avoid such activism.

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Table 1 : Pension Contributors and Public Expenditure on Pension

Year of Pension Reforms Pension Contributors % of labour force 70.0 31 39.0 53.0 82.0 30 14.8 91.1 73.0 48.7 94.0 10.6 % of Working age population 43.0 29 29.3 39.0 78.3 31 13.3 88.9 56.0 37.8 91.9 7.9 Public Expenditure on Pension Average Pension as % of Per Capita Income 56.1 72.2 64.1 78.0 33.0 -

Country

Year Chile Peru Colombia Argentina Uruguay Mexico Bolivia UK Sweden Singapore Malaysia USA India 1995 1997 1999 1995 1995 1997 1999 1994 1995 1993 1993 1992

Year 1993 1996 1994 1994 1995 1996 1993 1995 1996 1990 1995 -

% of GDP 5.8 1.2 1.1 6.2 15.0 0.4 0.4 11.4 1.4 1.0 7.2 -

Year 1993 1989 1996 1994 1989 -

Source World Development Indicators , World Bank. Table 2 : Real GDP Growth Rates in selected countries
Country Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India Pension Reform 1981 1993 1994 1994 1996 1997 1997 Average 1983-92 5.9 -1.0 3.7 1.7 2.5 1.8 1.2 1.7 7.0 6.6 5.4 1993 7.0 4.8 5.4 6.3 2.7 2.0 4.3 -2.2 12.7 9.9 5.0 1994 5.7 12.8 5.8 5.8 7.3 4.4 4.7 4.1 11.4 9.2 6.9 1995 10.6 8.6 5.2 -2.8 -1.4 -6.2 4.7 3.7 8.0 9.8 7.7 1996 7.4 2.5 2.1 5.5 5.6 5.2 4.4 1.1 7.7 10.0 7.3 1997 7.4 6.7 3.4 8.1 5.0 6.8 5.0 2.1 8.5 7.3 4.9 1998 3.9 -0.5 0.6 3.8 4.5 5.0 5.2 3.6 0.1 -7.4 5.8 1999 -1.1 -0.9 -4.1 -3.4 -2.8 3.7 0.4 4.1 5.9 6.1 6.8 2000 4.5 3.1 2.8 -0.5 -1.3 6.9 2.4 3.6 9.9 8.3 6.0

Source : World Economic Outlook, October 2001 International Monetary Fund.

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Table 3 : Annual Growth Rates in Household Cons umption Expenditure And consumption Expenditure per capita
Average annual % Growth rate in Country Year of Pension Reforms 1981 1993 1994 1994 1996 1997 1997 Household Final Consumption Expenditure 1980-90 2.0 1.4 2.6 0.7 1.1 1.2 1.8 5.8 3.3 4.6 1990-99 7.3 4.2 3.0 3.3 5.6 1.9 3.6 0.7 5.9 5.4 4.9 Household Consumption Expenditure per capita 1980-90 0.3 -0.8 1.4 0.1 -1.0 -0.9 1.5 4.1 0.4 2.5 1990-99 5.7 2.4 5.2 2.0 4.8 0.2 1.2 0.3 3.9 2.8 3.0

Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India

Source : World Development Indicator 2001 World Bank. Table 4 : Gross Domestic Savings as % of GDP
Country Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India 1980 20 32 20 24 12 25 19 19 38 33 17 1990 28 18 24 20 18 22 11 24 44 34 23 1995 29 11 16 18 13 19 8 19 20 22 22 1997 26 21 17 18 11 23 11 22 51 44 22 1999 23 20 11 17 14 22 9 22.4 51.7 20.0 20.0

Source : World Development Report, 1997, 1998/99 World Bank.

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Table 5 : Gross Domestic Investment as % of GDP

Country Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India Gross Domestic 1980 21 29 19 25 17 27 15 21 46 30 21 1990 25 16 19 14 12 23 13 24 44 34 23 1995 27 17 20 18 14 15 15 19 20 41 25 Investment 1997 28 25 21 19 12 21 18 15 37 43 25 1999 21 22 13 19 15 23 19 22 52 47 20

Source : World Development Report, (1997 & 1998/99) World Bank, World Development Indicators 2001, World Ba Table 6 : Average Annual Growth in Gross Capital formation.
Country Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India Year of Pension Reforms 1981 1993 1994 1994 1996 1997 1997 Average annual Growth % Gross Capital formation. 1980-90 1990-99 6.4 11.1 -3.8 9.6 1.4 5.2 -5.2 9.4 -6.6 8.0 -3.3 3.8 1.0 9.5 4.4 3.1 3.1 6.5 0.6 8.5 6.2 6.5

Source : World Development Indicators 2001, World Bank.

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Table 7 : Financial Deepening in the post Reform Period

Country Domest ic Credit provided by Banking Sector (as % of GDP) 1990 1999 73.0 72.5 20.2 27.6 35.9 41 .4 32.4 35.6 46.7 54.4 36.6 28.8 30.7 67.7 140.5 75.7 75.7 51.6 115.8 94.7 151.6 49.6 Liquid Liabilities (as % of GDP) 1990 40.7 24.8 29.8 11.5 58.1 22.8 24.5 52.4 123.6 64.4 43.2 1999 52.2 34.2 35.1 31.6 48.7 28.9 56.1 45.3 121.2 136.0 52.4 Ratio of Bank Liquid Reserve to Bank assets (as % of GDP) 1990 3.8 22.0 26.3 7.1 31.1 4.2 18.8 1.9 3.7 5.9 14.8 1999 4.0 16.4 29.6 23.9 18.4 6.4 4.8 1.3 4.2 8.3 12.2 Interest rate spread (as % of GDP) 1990 8.6 2335.0 8.8 76.6 18.0 6.8 2.7 1.3 1999 4.1 14.5 9.1 3.0 39.0 16.3 23.1 3.9 4.1 3.2 -

Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India

Source : World Development Indicator, World Bank. TABLE 8 : CHANGES IN STOCK MARKETS
Market Capitalisation As % of GDP 1990 45.0 3.1 3.5 2.3 12.5 1999 101.1 25.8 13.4 29.6 0.8 31.8 1.4 Value Traded Value trade as % of GDP 1990 2.6 0.4 0.2 0.6 4.6 1999 10.2 4.4. 0.8 2.7 -0 7.5 Turnover Ratio Value of share traded as % of Market Cap. 1990 6.3 19.3 5.6 33.6 44.0 1999 9.4 12.6 3.8 4.8 09 32.3 1.0

Country

Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India

93.6 110.4 12.2

233.6 184.0 41.3

55.4 24.7 6.9

115.4 61.4 27.3

24.6 65.9

66.9 44.6 133.6

Source : World Development Indicators 2001, World Bank.

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Table 9 : Stock of Pension Fund Assets as Percentage of GDP

Year 1982 1985 1990 1991 1992 1993 Average 1982-1993 0.04 0.18 0.32 0.40 0.36 0.43 0.24 Chile Singapore 0.48 0.69 0.60 0.61 0.64 0.56 0.62 Malaysia 0.27 0.36 0.45 0.45 0.48 0.51 0.41 U.K. 0.31 0.48 0.56 0.60 0.65 0.77 0.52 U.S.A. 0.29 0.40 0.43 0.49 0.51 0.53 0.39

Source : Technical Papers No.130 OECD Development Center Table 10 : Trend in Global Financial Flows.
Foreign direct Investment as % GC formation 1990 7.8 0.9 6.7 9.3 4.3 4.4 3.5 41.5 16.4 0.2 1999 62.8 17.3 10.1 44.2 7.2 10.5 64.7 147.2 25.2 8.8 2.1 Foreign Direct Investment ($ million) 1990 590 41 500 1836 2634 27 1982 557 2333 162 1999 9221 1969 1109 23929 229 11786 1016 59386 6984 1553 2169 Bonds Portfolio Bond ($ million) 1990 -7 -4 -857 -16 661 -1239 147 1999 862 -255 1236 8000 -137 5621 746 -1126 Investment Equity ($ million) 1990 320 13 563 293 105 1999 18 289 25 404 1129 522 1302

Country

Chile Peru Colombia Argentina Uruguay Mexico Bolivia Sweden Singapore Malaysia India

GC = Gross Capital Formation Source : World Development

Indicators

2001,

World

Bank.

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Bibliography
1. Barr, Nicholas (2001) The truth about Pension Reform in Finance Development Sept.2001. 2. Bailliu, Jeanine and Helmut Reisen Do Funded Pensions Contribute to Higher Aggregate Savings ? A Cross Country Analysis .OECD Development Center , Technical Paper 130 3. Corsetti, Hoaquan and Krans-Schmidt-Hebbel Pension Reform and Growth World Bank Policy Research Working paper 1471. 4. Gersdorff, Hermann Von(1997) The Bolivian Pension Reform Innovative Solution to Common Problems World Bank Financial Sector Development Department, July 1997. 5. Gray ,Clive and Weig David Pension System Issues and Their Relation to Economic Growth , CAER Discussion Paper , HIID ,JULY 1999. 6. Holzmann , Robert On Economic Usefulness and FISCAL Requirements of Moving from Unfunded to Funded Pensions Working Paper . University of Saarlan, Germany 7. Holzmann, Robert Pension Reform, Financial Market Development and Economic Growth: Preliminary evidence from Chile in IMF Staff Papers vol.44, No.2, June 1997. 8. India : The Challenge of Old Age Income Secutiry World Bank, April 2001. 9. Idemoto, Steve Social Security Privatisation in Chile : A case for caution. Economic opportunity Institute (29th Sept.2000) 10. James, Estelle (1998), New Models for odl age security: Experiments, evidence and Unanswered Question. The World Bank, Research observe, Vol.13 No.2(Aug 1998) 11. Langer David The Lession of Chilean Social Security in contingencies. March-April 1998. 12. Loayza Norman, Klaus Schmidt Hebbel and Luis Serven Saving in Developing Countries: An overview in The World Bank Economic Review volume 14, Sept. 2000. 13. Mitchell, Olivia S (1996) Social Security reform in Uruguay : An Economic Assessment Pension Research Council, Philadelphia. 11 Mitchell , Olivia S AND Marc Twinney : Assessing the Challenges to the Pension System n i Positioning Pension for 21st Century . M

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Gordon , OS Mitchell and M Twinney eds Pension Research Council , Philadelphia 1997 12 Normann, Goran and Daniel J. Mitchell Pension Reforms in Sweden : Lession for American Policy Makers Heritage Foundation (No 1381), June 29, 2000. 13 Rodrik Dani, Saving Transition World Bank Research Project on saving (1998). 14 Rondanelli, Hindle Eric (1996), quoted by Clive Gray & David Weig in Pension System and their relation to Economic Growth , CAER II Discussion paper 14, July 1999. 15 Ruyter Tina (1998) Mandatory options comparing the Provident Fund pension model with defined contribution alternatives Asset International. 16 Thompson Lawrence H (1999) Administering Individual Accounts in Social Security : The role of values and objectives in shaping options. Urban Institute.

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