As many as 60 countries have so far signed up for the switch from the unfunded pension system to a funded one, beginning from the mid- 1990s, according to a World Bank study.

In most cases, the reforms are based on the three-tiered pension model developed by the Bank in 1994. While Chile, which began its reforms in 1982, was till recently the most quoted example of how a funded pension system can be developed, the experience of other countries show that the reform agenda is not unidimensional.

Among the major stumbling blocks are the facts that the investment plan for funded pension relies heavily on the health of the stock market. In end-December last year, the total pension shortfall of all the US companies amounted to $300 billion as a result of the market meltdown.

The countries that have embarked on an overhaul of their pension schemes include from Latin American countries such as Mexico, Columbia and Argentina to OECD countries such as France, Sweden, Germany and Italy. The OECD group have switched over either completely or in a graded manner to funded pension systems.

In fact, the OECD has made pension reforms a prerequisite for its membership. As a result, a number of east European countries have also started privatising the public responsibility of providing security for the aged.

Even hardcore votaries of social security such as the International Labour Organisation now acknowledge that an ageing population and globalisation pose huge challenges to any system of collective provisioning for old age.

The ILO now have veered round to the idea of a privately funded pension plan. Such funds, with an advantage of being more transparent, provide the much needed funds for the infrastructure sector.

However a study by the International Conference of Free Trade Unions says the new scheme will impose a double burden on the first generation of workers.

It comes from the need to provide for their own retirement while supporting accounts for the current retirees. The ICFTU says this often creates a fiscal strain on the government, which it has to make up by either larger tax or by fresh borrowing.

There are administrative problems too. Poland, which has introduced the new system in 1999, and on which our system is largely based, found that identification numbers of beneficiaries were flawed and were difficult to be redone.

Due to a deterioration in growth rate of the economy in 2001 and 2002, the government had to cut back the matching contribution to the pension fund.

In China, according to another study, money paid by workers for their retirement benefits was diverted to pay for the current retirees, while pension fund withdrawals now exceed pay-ins in 25 cities, up from just five cities in 1997.

The successful Latin American pension reform stories show that capital mobility across the borders can only reduce, but not eliminate the consequences of an ageing population on falling returns.