governments to be able to maintain current replacement rates. For example, in the case of Poland, the adjustment will come through reductions in replacement rates.

In the case of Latin American countries, where the financial crisis was milder than in other regions, mandatory funded schemes will be unable to provide replacement rates at the expected levels of 60 to 70 percent, and consequently individuals will need additional savings to have adequate pensions in the future. Lower replacement rates are explained by future labor market conditions, including low density of contributions; lower interest rates and lack of proper diversification of pension funds, and more realistic expectations about future returns.

Overall, countries will need savings as a way of complementing future retirement income. In the presence of fiscal and political pressures on mandatory funded schemes, it is essential to put in place adequate regulations on voluntary pension schemes.

A precondition for participation in voluntary pension schemes is that individuals have reasonable expectations about the expected replacement rates that they will receive at retirement age from the public system. Unrealistic promises of future pensions to be provided by the social security system will not only result in unpleasant surprises for future retirees, but also will fail to alert individuals of the need to build savings for retirement within a timeframe that will allow them to accumulate sufficient to have a meaningful supplement to their social security pension or mandatory funded scheme, when available.

While some countries are in the process of making individual projections of future pensions available to current workers, others are promising pensions that the government will not be able to meet in the future.

In the case of Chile, a system dominated by a mandatory funded scheme, the Superintendence of Pensions provides personalized projections to contributors in their quarterly booklet, based on patterns of contributions, age and expected retirement age. The evidence suggests that so far these projections have been useful in encouraging a segment of workers into voluntary savings schemes.<sup>2</sup> These projections are essential for increasing the awareness about the need for future supplementary retirement savings.

Other countries, like Brazil, are lagging behind these efforts and will need to be honest about their capacity to pay future pensions under the current rules. For example, in the case of the State of Bahia in Brazil, the 2013 deficit of the social security system for public employees of the state was slightly lower than 10 percent of the tax revenues (Figure 1). According to World Bank calculations, these expenditures will increase to levels of 30 to 40 percent of the tax revenues by the mid-2030s. While the ability to pay future pensions under the current rules is still theoretically possible, it will come at a cost of significant reductions in other expenditures, including health and education. It is highly probable that the pension benefits of these civil servants will need to be revised. Unless these civil servants are aware of and take into account the probability of future changes in benefits, they will not be motivated to participate in voluntary funded schemes.

> 2 Antolin and Fuentes (2012).

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