two exceptions are Hungary and Poland, where pension funds allocate more than 60 percent of their assets to government securities (Figure 13).

**Figure 11:** Selected LAC countries: Portfolio composition of pension funds by sector issuer (percent)

<!-- Start of picture text --> 100%<br>80%<br>60%<br>40%<br>20%<br>52<br>0%<br><!-- End of picture text --> <!-- Start of picture text --> 52 67<br><!-- End of picture text --> <!-- Start of picture text --> 90 65<br><!-- End of picture text --> <!-- Start of picture text --> 60<br><!-- End of picture text --> <!-- Start of picture text --> 100%<br>80%<br>60%<br>40%<br>20%<br>61<br>0%<br><!-- End of picture text --> <!-- Start of picture text --> 75 47 65<br><!-- End of picture text --> <!-- Start of picture text --> 65 79 73<br><!-- End of picture text --> <!-- Start of picture text --> 19 60<br>PeruDom. Rep.UruguayDom. Rep.UruguayUruguay<br><!-- End of picture text --> <!-- Start of picture text --> 60<br><!-- End of picture text --> <!-- Start of picture text --> 97 60<br>7<br>Peru Uruguay<br><!-- End of picture text --> <!-- Start of picture text --> Government bonds Financial institutions<br>Non-financial institutions Equities<br>Investment funds Others<br>BoliviaCosta RicaEl Salvador Mexico Peru Uruguay<br><!-- End of picture text --> <!-- Start of picture text --> Government bonds Financial institutions<br>Non-financial institutions Equities<br>Investment funds Foreign securities<br>Others<br>BoliviaColombiaCosta RicaEl SalvadorMexico PeruDom. Rep.UruguayDom. Rep.UruguayUruguay<br><!-- End of picture text --> <!-- Start of picture text --> Source: AIOS.<br><!-- End of picture text -->

**Figure 12:** Chile: Portfolio composition of pension funds, 1981-2006 (percent)

**Figure 13:** Selected OECD countries: Portfolio composition of pension funds, 2005 (percent)

<!-- Start of picture text --> 100%<br>80%<br>60%<br><!-- End of picture text --> <!-- Start of picture text --> 80<br>60<br>40<br>20<br>0<br>Government Bonds Mortgage Bonds<br>Time Deposits Corporate and Bank Bonds<br>Equities Foreign Securities<br>1981198319851987198919911993199519971999200120032005<br><!-- End of picture text --> <!-- Start of picture text --> 40%<br>20%<br>0%<br><!-- End of picture text --> <!-- Start of picture text --> UK<br><!-- End of picture text --> <!-- Start of picture text --> Corporate Bonds Time Deposits<br>Mutual Funds Others<br>DenmarkHungaryIcelandKoreaNetherlandsNorwayPolandSpain UK<br><!-- End of picture text --> <!-- Start of picture text --> Equities<br><!-- End of picture text --> <!-- Start of picture text --> Foreign Securities<br><!-- End of picture text --> Overall, pension funds in reformed LAC countries have posted reasonable rates of return on their investments. For the period 2000-2006, real rates of return varied significantly within and across LAC countries. In 2006, the annual real rates of return since the systems’ inceptions were between 6.7 percent (in Costa Rica) and 11.8 percent (in Uruguay) (Table 8). These numbers compare favorably with those of developed countries. For example, the real rates of return generated by UK pension funds in the past four years averaged 14 percent in 2003, 8 percent in 2004, 17 percent in 2005 and an estimated 7 percent in 2006. Over the 44 years since 1963, UK pension funds have generated real annual returns averaging 4.5 percent (International Financial Services London 2007). Comparisons of rates of return between pension funds and domestic benchmarks are a difficult task. Auguste and Artana (2006), controlling for regulatory differences, evaluate the performance of PFAs in Argentina, Chile, Colombia, and Peru. They found that the real return on individual contribution accounts in these countries were higher than those of hypothetical distribution systems. In addition, historical rates of return of PFAs compare relatively well with other domestic investment options when adjusted for risk.

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