Behavioral Centered Design Can Provide Powerful Solutions For Ghana’s Informal Sector Pension Scheme

The Ghana Social Security and National Insurance Trust (SSNIT) recently announced its plans to revive the Informal Sector Pension Scheme (ISPS), a pension scheme program for the informal sector that started in 2008 after a three year pilot period. In 2014, the program was retired due to poor management implementation and low uptake of the program. On the one hand, the proposal to revamp the ISPS squarely addresses the issues of management and implementation, but on the other hand it lacks interventions to address the behavioral challenges behind low uptake by eligible enrollees.

Official figures on ISPS indicate that the scheme has enrolled about 100,000 informal workers since its launch. This is about 1.1% of the estimated informal labor force. Without sufficient enrollment, ISPS runs the risk of failing. Multiple case studies show that low uptake of social security programs is not only caused by implementation issues but also by behavioral drivers on the part of eligible enrollees. These behavioral drivers are often enabled by program design and implementation or lack thereof. ISPS is no different.

Under the structure provided by ISPS, informal workers face strong behavioral barriers to not only enroll but to also save adequately for their retirement. As it currently stands, the ISPS is a voluntary contribution scheme available to both informal and formal workers but mainly targeted at the informal sector. Enrollment is not automatic and there are no stipulations for minimum contributions.

The core program design of ISPS provides enrolled workers with the flexibility to elect contribution amounts and schedules based on the level and regularity of their income. Therefore, achieving a comfortable retirement hinges solely on an individual’s initiative to voluntarily make additional contributions to their retirement accounts.

The ISPS has successfully designed flexible structure that licenses informal workers to save for retirement however the voluntary aspect the scheme plays into the lack of motivation that many workers- formal and informal grapple with. The current program lacks mechanisms to encourage or remind workers to save.

Without these cues, saving for retirement might receive limited attention when stacked up against more pressing immediate demands.

Motivational barriers might be particularly acute for ISPS because the informal sector in Ghana is largely made up of lower income or poor workers. The extra burden of living paycheck to paycheck is not only a resource constraint but also one that increases myopia. Behavioral science research has shown that scarcity of resources creates a scarcity of mindset that shortens a person’s horizon. In a sense, increasing the number of ISPS registration centers might only partly solve the problem of enrollment. The other challenge is motivating people to sign up.

Focus group studies have suggested that another primary driver for low enrollment and contributions, within ISPS’ voluntary structure, is present-bias. When faced with an option to enroll or increase contributions to ISPS for retirement, there is a tendency for people to put weight on immediate consumption needs. Further evidence of this is a report on a ISPS sensitization workshop organized by the Ghana Trade Union Commission in

February 2011. A survey of the crowd showed that most participants were interested in the loan component of the scheme rather than the core retirement benefits program.

Behavioral design can provide SSNIT with the tools to address these broad behavioral diagnoses. This process would certainly require a more diligent and context specific behavioral diagnosis that goes beyond the broad diagnosis presented here. However, behavioral mapping and subsequent behavioral design have provided similar programs with powerful solutions.

The MBAO Pension scheme in Kenya, has benefited tremendously from behavioral interventions aimed at increasing enrollment and contributions. To address the issue of motivation, MBAO now offers enrollees the option to deposit contribution via the mobile money platform, MPESA.

SSNIT’s proposal to revive ISPS is a step in the right direction. Incorporating behavioral centered design would be a vital step towards a sustainable pension scheme- a scheme that empowers the informal Ghanaian worker to plan and take action to secure their future.

Submission by Anna Twum
Anna Twum in a current graduate student at Princeton University concentrating in economics and public policy

Twitter: @annatwum