In Search of Inclusion: Informal Sector Participation in a Voluntary, Defined Contribution Pension System

Abstract

This paper examines who contributes and who persists in contributing in a national, voluntary, defined contributory pension program, where the government provides the incentive of matching contributions of a minimum amount (USD 16Abstract This paper examines who contributes and who persists in contributing in a national, voluntary, defined contributory pension program, where the government provides the incentive of matching contributions of a minimum amount (USD 16). The paper uses proprietary data from a financial services firm where 12 percent of customers (37000 individuals) chose to participate in this program. The evidence shows that only about 50 percent of contributors reach the minimum amount for the co-contribution, but that participants persist in contributing even if they failed to contribute the minimum amount in a given year. While this paper does not provide causal estimates, it does present evidence of considerable interest among the informal sector in a state-run voluntary pension program in a emerging market where access to formal finance is otherwise poor.

Factors Influencing Informal Sector Workers’ Contribution to Pension Scheme in the Tamale Metropolis of Ghana

“…Usually, older workers begin to gather wealth for themselves and their families. This is similar to the findings of Sane and Thomas (2013) but contrary to Collins-Sowah et al (2013). Surprisingly, single workers were found to have a higher probability of contributing to the scheme than the married workers.…”

The Relative Impact of Income and Financial Literacy on Financial Inclusion in Nigeria

“…Their findings are similar for households and enterprises. However, while income is important in driving financial inclusion, Sane and Thomas () use observations from informal sector participation in a national matched defined contribution programme in India, to show that participation probability decreases with income. The current research extends the extant literature by focusing on the relative impact of income and financial literacy on the demand for both formal and informal savings while controlling for age, gender and rural–urban dwelling.…”

Extending Pension Coverage to the Informal Sector in Africa

“…The contributor has to choose the desired pension amount, and the contributions are based on this pension amount and the age of 30 See "NPS: PFRDA Lowers Minimum Contribution to Rs 1,000 per Year," Economic Times (August 15, 2016), Mumbai, https://economictimes.indiatimes.com/wealth/personal-finance-news/nps-pfrda-lowers-minimumcontribution-to-rs-1000-per-year/articleshow/53706463.cms. 31 For an example of the experience of the NPS-Swavalamban on the ground, see Sane and Thomas (2015).…”