Chapter 2 - Finance for Development
Pension Reform, Capital Markets and Corporate Governance
Latin America leads the developing world in pension reform. Chile launched the process in 1981, followed since the 1990s by nine other countries in the region and some outside. The reform constitutes a transition from publicly managed “pay-as-you-go” to privately managed, fully funded, retirement systems. Its objectives, in addition to providing a reliable source of retirement income for workers and reducing the fiscal drain on governments from existing systems, include two on which this chapter focuses: the enhancement of national savings, where overall results are not encouraging; and the deepening of local capital markets, where results are encouraging. Policy recommendations include measures to improve the alignment of incentives amongst pension-fund members (active and retired workers), sponsors (employers) and managers. Countries should re-examine regulations that hamper a healthy diversification of pension assets, while maintaining high prudential standards. Some countries must give attention to the excessively high administrative fees and costs that pension funds charge members. Better governance of pension funds can also enhance their role as agents for improved corporate governance outside the pension sector, contributing to long-term economy-wide productivity growth for the considerable benefit of workers, active and retired, and employers alike.