ABSTRACT
This chapter describes the almost universal problems in traditional systems. It discusses structural reform models that are being implemented - the Latin American model in which workers decide how their savings will be invested, and the Swedish model in which workers have large notional accounts, possibly supplemented by small funded accounts with real savings and investments in them. The chapter examines empirical evidence on the positive efficiency and growth impact of the reforms, as well as the major new problems that have emerged. The Latin American model was pioneered by Chile in 1980 and, bolstered by its initial success, was closely followed by Argentina, Peru, Colombia, Mexico, Uruguay and Bolivia in the 1990s. However, all Latin American countries limit international diversification of pension fund investments, which virtually ensures large investments in government bonds. A small but growing body of empirical evidence indicates that pension reform has produced positive efficiency and growth effects.
