Reform of the Colombian pension system began in 1994, at which time only about 27 percent of the working population was covered by the pay-as-you-go system despite the existence of an array of subsystems.

Although the conceptual foundation for the private system in Colombia is similar to Chile's, conditions for the transition between the old and new systems are not. In Colombia, as in Argentina and Peru, the old pay-as-you-go system remains in place, administered by a social security agency that receives new contributors. Workers can move freely from one system to the other following a minimum three-year stay. The new private system is taxed under the guise of a "solidarity" contribution of 1 percent deducted from the worker's earnings.

The private system in Colombia is similar to Chile's in contribution requirements and benefits delivery. Also like Chile's, the new Colombian system offers a minimum pension guarantee. Differences between the two countries' systems emerge in implementation, due partly to the fact that the Colombian reform was approved during the final days of Cesar Gaviria's presidential administration and was not supported by incoming president Ernesto Samper's party. Just four months after the rollout of the private alternative, Samper took office and was charged with administering the reform.

This helps explain the vacillations in government support for the new system as well as the obstacles created by some government officials. The Social Security Institute, which oversees the old system, competes openly with the private AFPs and advertises for new participants. While the competition itself is not necessarily a drawback, the confusion it has created among participants has caused problems.

Initially workers were assumed to have chosen the old system unless they formally stated otherwise. Thus the burden of proof fell on the new system, which was barred for three years from appealing to those workers. The legislation has since been modified so that the three-year minimum does not apply until a worker expressly states his or her desire to join one system.

Another obstacle sprang from collection of the new funds. Initially the Social Security Institute collected contributions for both the old and the new systems. The revenue of the AFPs was adversely affected because the Social Security Institute often was slow to transfer the collected funds to them.

Now, three years have passed and about 2.5 million active workers have joined the private plan. Another 4.5 million workers remain in the old system.

The new Uruguayan system inaugurated in 1996 is mixed, allowing participants to pay into private investment accounts while continuing to contribute to the old government-run system. Participation in the old system is required for workers over age 40 whose income is above a minimum threshold. The first private investment fund (AFAP) to begin operation was government-owned, and it competes with the privately owned AFAPs. Workers must pay 15 percent of their income into the pension system, but with health insurance premiums included, the total premium is 27 percent of income. As in Argentina, collection of the funds is centralized under the government's general tax authority.

Before the reform, the payroll tax for retirement was more than 20 percent, one of the highest rates in the world, and a large portion of all government spending - more than one-third in 1990 - was for pensions.¹⁹

In late 1996 Bolivia passed social security reform based on privately administered individual retirement accounts, and in 1997 it implemented the new system. The system has several unique features.

As part of wide-ranging economic reform, in 1994 Bolivia began privatizing state-run companies under a "state capitalization plan." The government received no proceeds from the privatization. Half the shares were sold to company investors and employees, and the proceeds used to capitalize the companies. The other shares went into the creation of the private pension system. Thus Bolivia's new system gets its funds from two sources.

• So-called contribution funds come from workers' earnings and are administered by AFPs.

• Noncontribution funds come from earnings on shares of the privatized companies that went into the system when it was established.

Workers must contribute 10 percent of their earnings - of which about 1 percentage point goes to administrative expenses - plus 2 percent for disability and life insurance.

After a bidding contest, Bolivia initially licensed only two AFPs and granted them five-year exclusivity. The AFPs invest the contribution funds and manage the noncontribution shares like mutual funds. When the AFPs began operation, the shares of stock making up the noncontribution fund were divided equally between them. They are allowed to sell the shares, convert them to other financial instruments or pledge them as collateral. Other AFPs may be authorized after the five years, although the original AFPs will have a clear competitive advantage.

Bolivia offers fewer options at retirement than the other countries. The retiree must buy an annuity based on funds in the individual account. If the funds are not enough for an annuity meeting the legal minimum, the government guarantees to cover the remainder. In addition to the annuity payment, a retiree receives an annual benefit for life from the noncontribution fund. Workers who contributed at least 60 times to the old system also receive a monthly retirement benefit from it.

Because Bolivia has a very young population - only about 5 percent are over age 60 and 40 percent are under age 15 - economists estimate that the noncontribution funds will last for 60 years, with most of the payments occurring in 30 to 40 years.²⁰