Willingness to participate in micro pension schemes: Evidence from the informal sector in Ghana

Abstract

Market and state based pension schemes in Ghana tends to be better adapted to formal conditions and this limits the participation of majority of the populace especially those in the informal sector of the economy. In cases where “an all inclusive” schemes are developed, no special consideration is made to better integrate low income earners or workers in the informal sector into such pension schemes. Informal workers and their respective households run high risks of falling into old age income insecurity trap. However, long term savings products like micro pensions which is a rather new concept has been developed to bridge the gap and inefficiencies in the open market and state based pension’s schemes in providing old age income security for low income earners. The study was a hypothetical exploratory research to identify underlying factors explaining four urban informal groups (beauticians, drivers, vegetable farmers and woodworkers) decision to participate in a Micro Pension Scheme. A Binary Logit regression model was subsequently used to estimate the factors influencing the participation decision. The survey found a high (87.75%) willingness to participate among the urban informal workers. The empirical results of the Binary Logit model reveal that socioeconomic variables including age, years of schooling, marital status, household size and health status, other income sources, assets, investments, and taxes/levies were important in explaining the decision of an urban informal worker to participate. At the individual economic activity level, having a driving license or being a private mini-bus transport driver or taxi driver has a negative influence on willingness of drivers to participate. In the case of vegetable farmers, location of production as well as rearing livestock alongside crop production also has a negative influence on participation. Further, the results indicate that the woodworker producing for the local market has a positive influence on a woodworkers’ willingness to participate in the scheme. These results have policy implications for the development and the design of Micro Pension Schemes for the informal sectors in developing countries Key words: Micro pension scheme, urban informal, determinants, participation, Ghana, Logit model.

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