Investment in the Retirement
Savings help people to be less vulnerable and can invest in their vital needs, which is why it is one of the basic pillars of financial inclusion. However, an important sector of the population with low incomes in which independent workers or “micro-entrepreneurs” play a prominent role barely makes use of pension savings schemes. Many of these people will reach the retirement age in the coming years, facing a situation of financial vulnerability.
Why do not people save for retirement?
On the one hand, the segment of the low-income population has low financial education, that is, they do not know the importance of saving as an instrument of financial inclusion, capable of mitigating their vulnerability in old age. There is also a lot of ignorance about what pension savings products are and how they work.
For example, many people do not know what the process of affiliation to these products is, what profitability they can obtain with their savings or if they can withdraw their money in case of emergency. This translates into insecurity when making decisions and even in certain distrust towards the products of pension savings. In addition, in the case of informal workers, they often do not have savings accounts or other financial products which makes it difficult for them to make automatic contributions.
But the causes of this lack of pension savings cannot be attributed only to workers. On the supply side, it can be observed that pension funds do not know this type of potential clients well. They have little information and do not know the preferences and financial habits of independent workers, so the types of savings offered are not adjusted to the needs of this sector. For example, they can offer financial products whose conditions are very complex to meet for independent and low-income workers, and on which they give information that is also very complex.
A challenge for financial inclusion:
Unlike the salaried population, the contributions are not made automatically, and therefore this population must voluntarily approach a payment point, usually to the offices of a bank or a pension fund. This affects the level of contributions since pension funds do not necessarily have an adapted service, nor are they located in the rural or marginal urban areas in which this population resides.
In turn, no reminders or follow-up messages are used to promote increases in pension savings, or good service is not available to the user to inform him of his account statements. In the case of pension savings products, therefore, the financial system is still far from being truly inclusive.
Although governments and pension funds are aware of the low use of pension savings among the low-income or independent population, this issue has not yet been adequately addressed: there are many 2020 Medicare advantage plans at http://www.medicareadvantageplans2020.org comparison challenges ahead to ensure that, tomorrow, the older adult population is better prepared for the time of retirement.