This issue features three original research articles, an issues & policy article and, as we noted in the Review of 2002 above, a new book review section. As in issues in our first volume, the articles in this issue span a broad range of topics.

The Chilean national pension system is often viewed as the model for moving from a pay-as-you-go system to a prefunded, individual account system. One measure of its success has been its 12% average real rate of return. This study uses monthly return data to examine the source of these returns and to compare the risk-adjusted returns of the pension system to those of Chilean stock indices, debt instruments, and mutual funds. Tests using the Sharpe ratio and the multi-factor Jensen alpha suggest that the pension returns are consistent with the overall riskiness of the Chilean economy. Based on our findings, neither the structure of the Chilean pension system nor the performance of the fund managers should permit the system to earn abnormally high returns in the future.

This paper examines the effects of unfunded public pensions on national income, growth rate, and employment in a model à la Lucas (1988) consistent with the empirical finding in Schoeni (1997). Our model shows that a public pension system can lead to a take-off from a low growth trap to a higher growth equilibrium.

Singapore has a publicly managed central provident fund (CPF) system, which is compulsory and based on individual accounts with an explicit link between contribution and benefits. This paper assesses the adequacy of the CPF saving to meet the retirement needs of the elderly in Singapore. Instead of emphasizing the mechanism of accumulation, we focus on the expenditure side of the lifetime budget of the elderly and estimate the present value of retirement consumption (PVRC). The estimated PVRC is obtained by simulations through three major components: calibration of subsistence and medical expenses of the elderly; forecast of cohort survival probability by age and by sex; and generation of yield curves to discount the future cash flows. Our results indicate that the existing CPF-decreed minimum sum is inadequate to meet the future consumption needs of the female elderly. The inadequacy becomes more severe when medical expense is set at higher growth rates. Moreover, the monthly payouts of a single premium deferred annuity are computed as illustrative examples.

This paper analyses the thrust of the UK Government's pension reforms in the context of the system they inherited. The reforms represent continuity with what went before in seeking to continue the privatisation of pension provision, but herald a new emphasis on pensioner poverty reduction. There is a clear broad strategy even though not all of the reforms fit obviously within it – a generous means-tested system, extensive private provision and a diminished contributory pension. In the long term, this strategy has advantages in terms of containing public sector liabilities, but involves further downgrading the contributory principle. It will also affect the incentive to save for many individuals. Individuals currently on means-tested benefits will be able to keep more of their savings as a result of the reform. But those currently outside the means-tested benefit regime who expect to be brought into it as a result of the reforms will face a diminished incentive to save.