Understanding the Emerging Micropensions Market in India

Millions of unorganized and informal sector workers in the developing world are excluded from formal pension and social security systems. Old-age economic security is a pertinent problem for such population groups and providing adequate and secure income flows in the future is a formidable challenge. The problem is aggravated by demographic transitions associated with significant increases in life expectancy and changing social structures like the breakdown of the traditional extended family system, making today’s workers vulnerable to unmitigated longevity risks, uncertain health costs and poverty in their post retirement period. Further, with underdeveloped annuity markets and poor financial literacy, workers face considerable challenges in retirement planning decision-making. Of late, a market for micropensions -- defined contribution pensions for the informal sector workers – has emerged. To determine how such long-term saving products might help solve the problem of old-age income security for informal sector workers, we require an improved understanding of the behavioral, economic, and institutional barriers to participation. Our study will examine the emerging micropensions market in India, to better understand the economics and key institutional aspects of defined contribution retirement benefit schemes currently on offer for informal sector workers. Our work will lead to additional research and policy analysis, as well as experimental analysis, of the potential for micro-pensions to enhance retirement security in developing countries.