Pensions developed when more traditional forms of life-cycle saving became more difficult to carry out, job tenure increased, and there was a movement away from the spot labor market. Thus they had an incentive to create a deferred wage. And workers wanted retirement insurance that was secure. As developing countries begin to employ an older work force with longer job tenure, the demand for defined benefit pensions will rise. If markets fluctuate because of financial instability, workers will prefer defined benefit plans, and they will want them to be provided by the institution in which they have the most faith.
Funding is important in the long run.
Sound accounting practices would dictate that the cumulative reserves match pension liabilities as they accumulate. The regular contribution to these funds would be the deferred part of the wage. But historically, in the United States, pensions were funded only when profits were high or tax incentives or regulation dictated. Developing countries will need a sound corporate tax structure and must be willing to forgo some immediate tax revenue, to create a large pension savings fund. The full report is available on our FTP server.