Devesa, J. E., and C. Vidal-Melia, 2002, “The Reformed Pension Systems in Latin America”, Social Protection Discussion Paper No. 0209, The World Bank
Schwarz, A. M. and A. Demirguc-Kunt, 1999, “Taking Stock of Pension Reforms around the World”, Social Protection Discussion Paper No. 9917, The World Bank
World Bank, 1994, “Averting the Old-Age Crisis: Policies to Protect the Old and Promote Growth”, World Bank Policy Research Report, Oxford University Press
World Bank and International Monetary Fund, 2003, “Nigeria: Analysis of the Government’s Pension Reform Proposal” (unpublished and confidential)
Prepared by Mauricio Villafuerte.
In 1981, Chile introduced a fully funded, privately managed, defined-contribution scheme as the primary pension provider. Peru and Colombia (1993) decided to keep the pay-as-you-go definedbenefit scheme as the primary system. Argentina (1994) retained a pay-as-you-go defined-benefit scheme for the primary system, but introduced the option of a fully-funded defined-contribution scheme as a mandatory supplementary system. Uruguay (1995) retained the pay-as-you-go as the primary system, but made the fully funded defined-contribution scheme a mandatory second pillar for those of moderate income and optional, but subsidized, for those with low incomes. Mexico (1995) set up a system like the Chilean one, but with public and private fund management. El Salvador (1998), Bolivia (1997), and Costa Rica (2000) also carried out reforms.
For example, Croatia, Estonia, Hungary, Kazakhstan, and Poland.
Admittedly, some countries chose not to eliminate the old system as a way to reduce short-term and transition costs. However, the coexistence of old and new pension schemes creates problems, including political ones. In addition, the transition to a funded pillar never got off the ground in some countries, such as Nicaragua, because of the budgetary implications.
This is often the result of limits on investing abroad or high exposure to single parties (in particular the government).
It replaced the National Provident Fund, which was a savings scheme with meager monthly contributions and that was plagued by poor compliance by employers and inadequate benefit payments and one-off lump sum benefits to claimants.
Without quantification, it is unclear if this contribution will be adequate.
The 2005 federal government budget includes an allocation of N125 billion for pension-related with outlays, compared N70 billion in 2004.
International experience shows the importance of carefully planning how to address the transition costs of the pension reform. For example, in Bolivia, pension costs are placing a high and increasing pressure on the budget because no provisions were made to address the residual liabilities of the PAYG system or to adjust in other spending or revenue items.