www.pensionreform.org By Caroline Nolan [Benefits Canada, May, 1997] WHILE BROWSING THE INTERNET RECENTLY, I stumbled across an interesting web site called The International Center for Pension Reform (ICPR). I’d never heard of the ICPR, so this discovery was a little like panning the world for gold and finding a huge nugget. The site was initiated by José Piñera, the former Chilean Minister of Labor and Social Security who, at the age of 30, spearheaded that country's pension reform in 1980. Today, he's president of the ICPR and co-chair of the Washington, D.C.-based Cato Institute's Project on Social Security Privatization. But why a web site? As Piñera put it in an on-line article, "I come from a distant country . . . But in these days of a global village, I can bring you an idea, a powerful idea, that can save social security by privatizing its provision. We tried this idea in Chile 16 years ago . . . with a team of young and creative people that I assembled to devise the reform, we did not ask ‘Why,’ but rather, as Bobby Kennedy had urged, ‘Why not?’" As many readers will already know, Piñera successfully implemented "a simple idea" allowing workers to tuck away their payroll taxes (the equivalent of CPP contributions in Canada) into individual pension savings accounts (PSAs), with the freedom to invest the protected assets as they please. The results? Says Piñera: "Today, nine out of 10 workers are in the PSA system. They have received an average return rate of 12% above inflation during 15 years. The whole issue has been depoliticized and civil society strengthened. The economy, not surprisingly, has also benefited . . . " He goes on to say that besides reduced unemployment (the Chilean rate is 5.5%), the country's savings rate is now 27% of the GNP. It's no secret Piñera thinks his PSA model is a good one for the U.S. and Spain, if not the world--hence the ICPR web site. Pension reform is at the forefront of the global mind. The U.K. is the latest to tackle the issue. In early March, the ruling Conservatives proposed to privatize state pensions. In fact, The World Bank has predicted that in the next few years, some 30 countries will initiate such reforms. Many Latin American countries already have, using Chile's model. As Jean Bonvin, president of the OECD Development Center (Organization for Economic Co-operation and Development) noted recently: "Latin America is setting the pace for pension reform worldwide." These reforms, however, also raise many regulatory questions. Should governments put restrictions on foreign investments? Click your way to the OECD site to read "Technical Paper No. 120," a new study, authored by the organization's Helmut Reisen, which explores the economics of foreign investment regulation for pension funds, with an emphasis on developing countries. One of Reisen's conclusions will be of particular interest to Canadian pension fund investors who regularly curse the 20% foreign investment limit. A popular argument against giving pension funds free rein to invest beyond a country's borders is that foreign restriction policies serve to stimulate the growth of domestic capital markets. Reisen discovered, by studying the numbers from 23 developing and developed countries between the years 1986 and 1993, there was "a weak negative correlation" between a country's total pension fund assets and the growth rate of its stock markets. Even if there is some evidence to support keeping a country's pension assets domestic, Reisen concludes that "the home bias generally observed in pension fund investment should translate into sufficient potential demand for domestic financial assets so as to deepen markets and develop the institutional infrastructure." In other words, pension funds aren't solely interested in achieving the maximum return possible, they must also balance this goal with another: to fulfill the pension promise. Tell that to Revenue Canada. In fact, fellow Internet junkies at Revenue Canada and elsewhere, can surf to our web site (www.benefitscanada.com) to find a link right to Reisen's research, as well as a link to the maestro of pension reform, José Piñera.