Asset Building for Old Age Security

This paper notes that given the significant burden that providing for the elderly places on the governments of developing countries, private organisations need to offer old age security programs to supplement public efforts. Specifically, it states, that since a large percentage of the workforce in developing countries is either self-employed or part of the informal sector, there is a need for private old age security plans that target low income entrepreneurs.

WWB believes that financial institutions, such as those in microfinance, could gain experience in products for the poor by beginning with a hybrid micropension-microsavings product. In this way, they could help the self-employed poor in accumulating assets, while designing more refined pension products that respond to client preferences and meet regulatory requirements. It is argued that a hybrid product would also enable institutions to hone their financial planning and asset management skills, before offering pure micropension products.

The paper argues that pensions for the poor should directly link contributions and benefits to encourage aggressive savings; and be voluntary, rather than compulsory, to provide the poor with financial flexibility. It notes that there are advantages and disadvantages of to offering fixed versus floating interest rates, flexible versus rigid withdrawal options, and various product terms. This paper aims to set out key measures in the design and implementation of customer-focused old age savings products.

The case for pro-poor asset building is first discussed – looking at capital growth that is required for saving for old age, the significant potential of the micropension market and the shortcomings of the current pension systems. The paper then focuses on micropensions as a new opportunity, where design details of the SEWA Bank pension product are given. The latter section also provides an evaluation of the dimensions of a potential micropension hybrid product.

  • Resource type
  • Author Women’s World Banking
  • Organisation
  • Year of Publication2003
  • Region
  • LanguageEnglish
  • Number of pages12 pp.
  • EditionWhat Works

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