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In search of inclusion: informal sector participation in a voluntary, defined contribution pension system

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Author Info

  • Renuka Sane

    ()
    (Indian Statistical Institute, New Delhi)

  • Susan Thomas

    ()
    (Indira Gandhi Institute of Development Research)

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 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 an emerging market where access to formal finance is otherwise poor.

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Bibliographic Info

Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2013-022.

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Length: 33 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:ind:igiwpp:2013-022

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Keywords: informal sector workers; pension accounts; matched defined contribution;

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  1. Bassett, William F. & Fleming, Michael J. & Rodrigues, Anthony P., 1998. "How Workers Use 401(k) Plans: The Participation, Contribution, and Withdrawal Decisions," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 263-89, June Cita.
  2. Xavier Giné & Robert Townsend & James Vickery, 2008. "Patterns of Rainfall Insurance Participation in Rural India," World Bank Economic Review, World Bank Group, vol. 22(3), pages 539-566, October.
  3. Engelhardt, Gary V. & Kumar, Anil, 2007. "Employer matching and 401(k) saving: Evidence from the health and retirement study," Journal of Public Economics, Elsevier, vol. 91(10), pages 1920-1943, November.
  4. Brigitte C. Madrian, 2012. "Matching Contributions and Savings Outcomes: A Behavioral Economics Perspective," NBER Working Papers 18220, National Bureau of Economic Research, Inc.
  5. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
  6. Sane, Renuka & Shah, Ajay, 2011. "Civil Service and Military Pensions in India," Working Papers 11/91, National Institute of Public Finance and Policy.
  7. Alessandra Guariglia & Sheri Markose, 2000. "Voluntary Contributions to Personal Pension Plans: Evidence from the British Household Panel Survey," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 469-488, December.
  8. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "The Composition and Draw-down of Wealth in Retirement," NBER Working Papers 17536, National Bureau of Economic Research, Inc.
  9. Emmanuel Saez, 2009. "Details Matter: The Impact of Presentation and Information on the Take-Up of Financial Incentives for Retirement Saving," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 204-28, February.
  10. Leslie E. Papke, 1995. "Participation in and Contributions to 401(k) Pension Plans: Evidence from Plan Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 311-325.
  11. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  12. Beverly, Sondra G. & Sherraden, Michael, 1999. "Institutional determinants of saving: implications for low-income households and public policy," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 28(4), pages 457-473.
  13. Gur Huberman & Sheena Iyengar & Wei Jiang, 2007. "Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates," Journal of Financial Services Research, Springer, vol. 31(1), pages 1-32, February.
  14. Viola Angelini, 2007. "The strategic bequest motive: evidence from SHARE," "Marco Fanno" Working Papers 0062, Dipartimento di Scienze Economiche "Marco Fanno".
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