Adequate Pension To Avoid Poverty

 Providing adequate pension to avoid poverty during old age for millions of Indians is a challenge for the Government and Regulator. Individuals from organised sector fare slightly better due to the availability of institutional support and ease of enrolling in pension plans offered by their respective employers. But encouraging individuals from the unorganized sector to adopt pension plans is easier said than done. There are a host of barriers which inhibits their engagement with formal pension plans

1) Social Proof: When in uncertainty people tend to follow with what others from their social reference group do.

In this case of saving in a formal pension plan by an unorganised sector employee is not the social norm. They have various informal channels/methods to save for the future for, eg Land, Real Estate, Gold, etc. By creating an enabling environment for the unorganised sector for engaging with a Pension plan and creating a system through which many in their social reference group come to know about it would have a positive impact enrollment. For eg: A small incentive/recognition mechanism for existing members to enroll new members.

2) Cognitive Overload: The sheer length and complexity of the account opening process might discourage people from engaging with formal pension plans

When a person earnings are not adequate to support a basic standard of living. Their entire cognitive energies will be spent on trying to achieve a minimum standard of living. They would hardly have any mental energies left to tackle all the paperwork required to open a formal pension plan. Simple account opening procedures would go a long way in triggering engagement from this segment of individuals. For, eg, Using Aadhaar credentials to prefill the application form, to print it out and sign to open the account.

3) Temporal Discounting: Individuals tend to prefer immediate rewards to long-term rewards. 

 People are focused and ascribe more value to immediate rewards and their inability to have empathy for their future selves result in completely ignoring their future retirement requirements. Also, the tendency to be over-optimistic (private optimism) about their financial future also inhibits them to start their retirement planning until it is too late.

Design engagement templates which highlight some of the short-term benefits of starting a pension plan can be effectively leveraged to overcome this barrier. For, eg, The tax benefits of starting the pension plan in this financial year and resultant cash savings

There are other behavioural biases which may have a role in the engagement of individuals to a formal pension plan. 

By understanding and explaining the role of biases in the decision-making process of a prospective pension customer. We would be able to create behavioural science based interventions which would drive adoption and deepen the engagement with formal pension plans.