The pension reform in Argentina was approved in 1993, establishing a mixed system consisting of a public pension pay-as-you-go pillar, complemented by a mandatory second pillar in which workers can choose between privately managed individual accounts or a publicly managed defined benefit scheme.
Affiliation to the system, the Sistema Integrado de Jubilaciones y Pensiones (AFJP) is compulsory and today has more than 8m members, of whom 3.5m make regular contributions to their accounts, representing $20bn.
Contributions to the system represent 27% of the worker’s earnings, of which 11% is contributed by the employee and 16% by the employer.
The assets of those workers joining the individual capitalisation system are managed by the Administradoras de Fondos de Jubilaciones y Pensiones (AFJP). Today eight AFJPs operate in the market: Arauca Bit, Futura, Nación, Orígenes, Previsol, Profesión+Auge, Unidos and Met – part of the North American group Metropolitan Life, which has just entered the market.
Argentina is one of the Latin American countries were pension funds are allowed to invest abroad, although at the end of January foreign investments only account for 4.49% of total assets. The exposure to domestic equities represented 13.91% of portfolios.
In July last year a new decree was approved which reduced the pensions of those taking early retirement, changed the commissions paid to the AFJPs and opened up the possibility of making investment restrictions more flexible.


Since 1993 the old public defined benefit system in Colombia has coexisted with the new private scheme based on individual capitalisation. Both systems compete in the market and workers have to choose between the two. They are allowed to change system every three years.
Seven AFPs are now operating in the market: Colfondos, Porvenir, Protección, Santander, Skandia and BBVA Horizonte – a recent merger between Colpatria and Horizonte, which now has a 20% marketshare and 22% of the affiliates to the system. The number of affiliates was almost 4m at the end of last year and the amount of assets under management around $3.5bn.
At June last year 46.55% of the total assets were invested in the public sector, 14.51% in the corporate sector, 27.02% in the financial sector, 6.45% in securities and only 2.63% in equity.
The coexistence with the old system has limited the evolution of the industry, and portfolios are less diversified that those in some neighbouring countries. However, in March the Superintendencia Bancaria made changes to the investment restrictions for the private compulsory schemes, allowing them to invest 10% of their portfolio in foreign fixed income investments. Apart from other changes in terms of investment regulation, the Superintendencia also took important steps towards the better understanding and more efficient administration of the system


The private pension system became operational in 1997, replacing the old public pension plans with a compulsory individual capitalisation savings accounts.
Because of its youth, the size of the market – $17bn at the end of last year – is still small if compared to the Chilean pension industry, but taking into account the size and population of the country, the market will became one of the largest in Latin America in terms of pension fund assets under management .
Today the system has around 18m affiliates. Contributions represent 6.5% of salary, paid by the employee, the employer and the government. In addition, the government makes a complementary contribution representing 5.5% of the minimum wage. The system has also two other sub-accounts for contribution towards property mortgages and another one for additional voluntary contributions.
The Administradoras de Fondos de Pensiones (AFORES) manages the assets of the pension funds (SIEFORES).
Today the portfolios of Mexican pension funds are among the less diversified in the region. At the end of February almost 95% of the total assets were invested in the public sector. The SIEFORES returns for last year were 7.21% above inflation.
Today 13 AFORES operate in the market, most of them linked to large international financial groups: Banamex, Bancomer, Bancrecer Dresdner, Banorte Generali, Bital, Garante, Inbursa, Principal, Profuturo-GNP, Santander Mexicano, Tepeyac, XXI and Zurich.


The Latin American giant has had private pension schemes since 1977. Since then the two different systems have coexisted: the compulsory public social security system and the voluntary private sector schemes.
Despite what has been done by neighbouring countries, Brazil hasn’t replaced its public systems with individual capitalisation schemes but reform is on its way. Although the social security system is supposed to be universal, only around half of the country’s official labour force is covered.
Private corporate funds and other types of pension plans act as a top-up to social security rather than a replacement.
There are two types of pension funds: the closed pension funds – corporate schemes – and the open fund. The two together have more than 5m affiliates amounting to $72bn.
The ABRAPP is the association of closed pension funds and ANAPP represents the open funds. At June last year the closed funds represent by the ABRAPP had around 25% of total assets invested in stocks, 36% invested in fixed income investment funds and 11% invested in equity investment funds. A new regulation coming into force this month will bring more restrictions to these portfolios, reducing the exposure to high risk investments.
About 45% of open funds assets were invested in public fixed income, and 35% in corporate bonds.
In March, the Brazilian congress passed two of the main projects of the reform of the country’s provisional system, that will translate into a further growth of the market. The number of pension funds is expected to double during this decade.


The law that transformed the pension system in Peru was passed in 1992 and the new schemes started operating a year later. The Peruvian system follows the Chilean model but, unlike in Chile, it coexists and competes with the old pension system.
Workers can freely opt to join the private scheme or stay in the old public defined benefit system, but membership of one of them is compulsory.
The private system now has more than 2.4m affiliates and the assets under management by Peruvian AFPs account for around $2.7bn. Although the portfolios were extremely conservative, pension fund investment have been diversifying considerably in recent years and around 35% of assets are now invested in equity.
Although AFPs were already allowed to invest abroad up to 10% of total assets, foreign investments had to be permitted and risk-rated before AFPs could invest in them and until last year not many permitted vehicles had been identified. In May 2000, a new law regarding foreign exposure of pension fund assets was passed, establishing a limit of 7.5% of total assets that can be invested in debt, deposits, mutual funds and shares.


Uruguay has long experience in mandatory pension systems. In 1896 the first mandatory system in the continent was established in this country. This was transformed during the pension reform that took place in 1996.
The reform in Uruguay has been a gradual one and a bit less radical than those in other Latin American countries.
The new system consists has a three- pillar structure. The first pillar is a publicly managed scheme based on individual accounts with compulsory contributions from all workers. The second pillar is privately managed and only those workers earning between $800 and $2,400 have to contribute. Those earning less than $800 can join the second pillar on a voluntary basis.
The system has now more than 500,000 affiliates of which around 300,000 contribute to their accounts regularly. In terms of investment, the around $800m in assets is mainly invested in the public (65%) and financial (24%) sectors .
Recently, a new law regarding investment of pension funds was approved. The new regulation makes more concession in term of limitations.
Affiliates are allowed to switch AFPs up to twice a year. In 1996 there was only one AFP in the market. Today the number has gone up to seven.


After several unsuccessful reform attempts, a new pension system was introduced in Bolivia in 1997, based on fully funded individual defined contribution (DC) accounts. Although the Bolivian system incorporates many elements of the Chilean system, it constitutes a completely new approach combining ‘capitalisation’ and pension reform.
The old DB public system was closed down and all affiliates were transferred to the new system.
Under the ‘capitalisation’ scheme, 50% of the capital of the six largest state-owned enterprises was transferred to private partners through an international auction. The strategic investors and the government both hold 50% of the shares, although the government then transferred its shares to the privately managed pension system, where they are managed as a ‘collective capitalisation fund’ together with and by the same companies managing the newly established individual retirement accounts.
The dividends of the fund were used to finance the ‘Bonosol’ programme which provides an annual old-age assistance benefit to all Bolivians over 65. The collective capitalisation fund started with shares of $1.67bn in securities and $40m in cash.
In 1997 around 300,000 existing affiliates were transferred into the system. No exclusions or exceptions were made.
The market was initially limited to two fund managers chosen via an international tender process after which two Spanish-led consortia were selected – Consorcio Invesco PLC- Argentaria (AFP Futuro de Bolivia) and Banco Bilbao Vizcaya (AFP Previsión BBV).
In 2002, the market will be further opened to new AFPs.
Individual account commissions are the lowest of all Latin America private pension systems – pre-set by the government at 0.5% of wages.


The Dominican Republic is one of the Latin American countries undergoing the reform of its pension system. Although there are more than 20 different public plans operating in different institutions, around the same amount of schemes operating in large corporations as well as several occupational schemes, less than 20% of Dominican workers are covered by a pension plan.
The discussions about the needed reform started in 1990 and eight years later the AFPs were created. Affiliation to the AFPs is now voluntary and attracts around 42,000 workers. Under the new bill, which is awaiting Congress approval, affiliation to an AFP will be compulsory. The new system will follow the Chilean model complemented by contributions from the system operating in Argentina, Mexico and Bolivia among others.
Seventy per cent of the funding for the new system will come from employers’ contributions and the remaining 30% from employees.
As opposed to strict investment limitations operating in other Latin American countries, the Dominican system will have no restrictions regarding sectors, financial instruments, currencies or countries, but it will guarantee a minimum return.
Once the law is approved the system will became fully operational in 18 months. It is expected that the number of affiliates during the first year will be between 300,000 and 400,000, increasing to at least 1m during the first five years. Four AFPs operate in the market: Popular, Siembra, American Life and Porvenir.