Brazil, in the midst of an economic program aimed at braking sky-high inflation and a campaign for president, also is starting to put emphasis on long-term pension systems.
"It does not make a difference for us" who wins the election, said Mizel Matos Vaz, president of the Brazilian Pension Fund Association. Luiz Inacio Lula da Silva, and Fernando Henrique Cardoso are the front-runners in the presidential race. The first round of voting begins on Oct. 3.
Whatever the outcome, Mr. Vaz said, Brazil will maintain its three-legged pension system based on the Brazilian social security system, company pensions available only to employees, and savings programs (called pensions) sold to anyone by financial institutions.
"We need to have a complete restructuring of the social security system. The system is bankrupt," said Humberto Casagrande Neto, executive director of the capital markets group of Banco Crefisul S.A., one of Brazil's largest pension fund managers.
Mr. Casagrande likes the privatized Chilean pension system, but no change in the current lineup seems in the offing from either presidential candidate.
"The PT (Workers' Party) will keep the present system," said Lawrence Pih, a key adviser to the Workers' Party, whose candidate is Mr. da Silva. Mr. Pih agreed the social security system is bankrupt, but said party officials believe it can be rescued by eliminating corruption in the agency and enforcing laws that require companies to deposit employee contributions to the government system. Companies frequently ignore the law, Brazilian newspapers report.
Mr. Cardoso came out against a privatized pension system late last month, a position opposed by his more conservative supporters in the Liberal Front Party. Mr. Cardoso is a founding member of the Brazilian Social Democratic Party, which has aligned itself with the Liberal Front Party - opponents of a privatized pension system - for the presidential election.
Brazil's economic program, inaugurated July 1 with the transition to the real as the country's new currency, could have an impact on future changes in the pension system.
The program is aimed at stopping inflation - which jumped nearly 50% in the month of June alone - and was initiated by Mr. Cardoso as finance minister earlier this year. Its success could give Mr. Cardoso - who resigned from his post to run for president - the push he needs to overtake Mr. da Silva in the election. Mr. Cardoso has been cool to the Chilean pension model but his Liberal Front Party supporters, who favor more market-based solutions for Brazil, are expected to have considerable influence in the administration he would form as president.
Banco Cresiful's Mr. Casagrande, however, believes the pension system will be changed "sooner or later" even though the leading presidential candidates are not now proposing modifications.
One area that especially needs changing, he said, is taxation. "We need something with the tax treatment similar to the individual retirement accounts in the United States," he said. Brazil's Congress proposed a plan to provide for saving vehicles similar to IRAs in the 1980s, but the law was never passed.
Changes or not, experts believe pension funds in Brazil - with total assets of $34.25 billion as of April - will be growing rapidly. The pension fund association estimates two million of Brazil's 56 million workers are enrolled in pension plans. The pension association estimated that 40 to 50 new funds will be created this year on top of the approximately 300 existing funds now sponsored by about 1,400 companies.
"We are projecting a rapid growth to 7 million participants with $500 billion (U.S.) in assets by the year 2010 with the present system," said Mr. Vaz.
Mr. Vaz, who is also head of the pension fund of Embratel - a subsidiary of Telebras, the state telecommunications company - said the allocation of investments in the funds could change considerably, depending on the success of the economic plan introduced on July 1.
"If the real plan brings economic stability, interest rates would fall. This could bring more investments in the recently created real estate funds," he said.
Brazil's Securities Commission recently approved real estate investment funds, thus improving the liquidity of real estate investments. Pension funds now will be allowed to invest up to 20% of their portfolio in the new investments.
Time deposits are now attractive to investors, including pension funds, because of Brazilian interest rates. Time deposits before the introduction of the economic plan on July 1 were paying about 20% a year after inflation, Mr. Vaz said.
Of the $34.25 billion in funds at the end of April, about $2.65 billion was retained by sponsors, as permitted by law, as an inexpensive source of working capital. Some 39% of the remaining assets are invested in Brazil's roller-coaster stock market, Mr. Vaz said. Another 16% is in real estate, such as shopping centers and hotels. Some 15% is in fixed income, with another 13% in bank certificates of deposit. About 4% is in loans to participants. The remaining 13% is in miscellaneous areas, such as gold and savings accounts.
External fund managers make the decision on the allocation of the investments, and no change is envisioned, said Mr. Casagrande.