ABSTRACT
Most Latin American governments are assessing feasible reform alternatives for their pension systems. Pension schemes have been traditionally developed on the basis of mandatory contributions by workers. An alternative mandatory pension arrangement develops around an earnings-related fully funded scheme which forces people to save part of wage income for old age. Reform proposals in the direction privatization should address and give proper solutions to the problems which characterize current pension systems based on pay-as-you-go (PAYG) schemes. The trends towards privatization promote the transition from public pay-as-you-go to full-funded pension schemes. In Colombia the pension system is administered by a large number of independent institutions. Under ideal conditions, when the PAYG system is mature, population growth constant and the scheme is financially balanced, pensioners are said to be paid on average a real return on their contribution equal to the real growth of the wage bill in the economy.
