A stretched social welfare budget. A right-of-center government keen to promote individual choice. An aging population. A pension system facing bankruptcy.

It sounds like the scenario outlined by President Bush as he urges changes to Social Security.

But it could equally apply to Britain 15 years ago, when the country began offering partially private pension accounts - a policy that was hugely popular at first, but has since proven highly controversial.

Ten years before that, in Chile, things were even more dire. The military government, facing what was by all accounts an unsustainable retirement program and a possible default on its obligation to retirees, replaced the state-run pay-as-you-go system with a three-pillared, largely private one. Twenty-five years later, Chile is looked to as a model of how to retool Social Security.

At least 20 countries have added some kind of private component to their traditional pension systems, with seven more in the process of implementing them. Each offers lessons on how - and how not - to revamp Social Security. With President Bush and his Cabinet in the middle of their "60 stops in 60 days" tour to tout changes to the US retirement system, the Monitor asked its correspondents in London and Santiago to examine two of those lessons.

Chile has what economists call a fully funded system, containing enough money to cover all retirees if they simultaneously decided to cash out.

The first pillar is the state's responsibility, which covers workers who retired before 1980 and guarantees minimum pensions for poor workers.

The second and main pillar is the obligatory monthly payroll deduction of 12.3 percent. Ten percent goes into the worker's own account, administered by one of six private pension funds, while 2.3 percent covers administrative fees. Unlike in the US, the payroll tax is funded entirely by the employee. At retirement - age 60 for women, 65 for men - they take out what they put in, plus accumulated gains. Currently 3.6 million Chileans, or 65 percent of the 5.5 million-person workforce, are actively contributing under this system.

The third pillar is a voluntary, tax-deductible savings plan administered by banks. One can withdraw before retirement, or add it to a pension. Some 420,000 Chileans have this type of savings. "We have to be proud of Chile's system," says Guillermo Arthur, who runs Chile's pension program. He says that pensions have grown an average of 10.4 percent since 1981, far exceeding the 4 percent that he says they need to be profitable.

Today, Chile has more than $60 billion in pension investments, equivalent to more than a third of the country's gross domestic product. Mr. Arthur says that these funds have been crucial to economic growth in the 1980s because pensions were invested in Chilean companies.

For pensioners who contributed to the system for more than 20 years, the government kicks in the difference between a retiree's pension and the state's guaranteed monthly minimum of 75,000 pesos ($132). A recent study by Chile's Association of Pension Fund Administrators showed that 72 to 84 percent of workers who are contributing under the second pillar can expect to receive more than the minimum.

Ilda Alvarez is among the many Chileans who didn't contribute for 20 years, so she only gets back what she put in, plus gains, but not a government subsidy. Her husband, Manuel, made screws for a living, and was able to contribute for 10 years, receiving only $100 a month now.

Rent alone costs nearly as much as her husband's pension, which means Ilda has to keep working, at 70, to earn an extra $120 a month. It's the only way to make ends meet. "Look, I can't complain," Ilda says, "because if we didn't contribute more, we don't receive more."

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