The structure, regulation, and
            performance of pension funds in nine industrial countries
The author offers an overview of issues
            relating to the development of funded pension schemes in
            industrial countries.  The analysis applies the economic
            theory of pension regulation to experience with the
            structure, regulation, and performance of funds in nine
            countries - Canada, Denmark, Germany, Japan, Netherlands,
            Sweden, Switzerland, the United Kingdom, and the United
            States - seeking to shed light on the finance of old age
            security in developing countries and the reform of pension
            funds in industrial countries. The main points of the
            analysis follow.  Pension funds are either defined benefit
            or defined contribution.  The individual bears more risk
            with defined contribution plans because the pension benefit
            depends on asset returns. Conceptually, defined benefit
            funds offer better employee retirement insurance.  Private
            defined benefit pensions are generally available only
            through companies and typically include some restriction of
            labor mobility. Because of some shortcomings of fully or
            largely funded plans, especially for income redistribution,
            governments have chosen to maintain at least basic levels of
            pay-as-you-go social security.  The scope of such unfunded
            social security schemes is the key determinant of the scale
            of private retirement savings.  The extent to which pension
            funds are used as a vehicle for retirement saving depends on
            the regulatory regime. Tax advantages are the most important
            incentive, but a wide range of other regulatory choices also
            make pension funds more or less attractive to firms and
            employees.  And some regulations, such as those affecting
            the portability of pensions, may have important consequences
            for economic efficiency.  Though countries differ widely in
            their regulation of pension funds, some suggestions for good
            practice can still be made.  Whether pension funds are a
            cost effective way of providing pensions depends on the real
            asset returns that can be attained, in relation to the
            growth of real wages. Ideally, there should be a gap of 2 to
            3 percent between them.  Portfolio distributions and fund
            management are the key determinants of returns to pension
            funds, subject to the returns available in the market.
            Prudent diversification in domestic and foreign markets and
            indexation of much of pension funds' portfolios both
            appear to be important.  Pension funds affect capital
            markets in many ways.  They influence market structure and
            demand for securities; stimulate innovation, allocative
            efficiency, and market development; and have a positive
            effect on overall saving.  They may also have some
            deleterious effects, such as increases in volatility, short
            termism, and weakening of the control exerted by investors
            and creditors over firms. Prospects for pension funds in
            industrial countries vary with the maturity of existing
            funds and the generosity of social security benefits. In
            countries such as France, Germany, and Italy, growth in
            coming decades could be sizable.  The key recommendations
            for countries that are just starting pension funds are for a
            mix of social security and private funds; for separate
            funding rather than book reserves; for defined benefit
            plans, subject to appropriate regulation; and for
            company-based pension funds.