Micro Pensions in Developing Countries: Implications and Policy Relevance

Abstract

This paper reviews the theoretical and empirical literature on micro pension products for informal sector workers in developing countries.  Micro pensions provide a mechanism that allows these workers to make small or infrequent contributions to a pension system, providing the flexibility they need to accommodate their irregular income flows.  The aim of micro pensions is to create an accessible, affordable all-inclusive pension system.  The evidence suggests that workers involved in informal employment lack access to social protections and employer-based pensions particularly in developing countries.  The evidence also suggests that micro pensions can contribute to the betterment of uncovered workers in less developed countries.  Micro pensions show potential for implementation in high-income countries where non-standard forms of work represent a significant minority of the labor force through contract, part-time, seasonal employment, freelance arrangements, and gig workers.  For instance, non-standard and informal employment arrangements represent about 20 percent of workers in the developed world (ILO 2018).  The Government Accountability Office (GAO) estimates that the size of total non-standard employment as a proportion of the total U.S. employed labor force can range widely, depending on how it is defined.  For instance, when including all self-employed, contingent and part-time workers, non-standard, non-traditional workers reached about 40 percent of the total work force in 2010 (GAO 2015).  This paper undertakes a discussion and analysis to weigh in on the debate for the feasibility, development, and implementation of micro pension schemes in developing and developed countries where informal and non-standard work arrangements employ significant shares of the labor force.