Pensumo as example saving through consumption platform

Seda Peksevim´s guest column titled: ‘Auto-enrolment: Not a lifeboat for EM countries’ has been published in the May/June issue of the European Pensions.

In this short article, She try to answer ‘Why auto-enrolment- a behavioral success story-does not work in EM pension systems?’

Given a large number of opt-outs in auto-enrolment systems, it seems that EM countries need ambitious behavioral and technological solutions to boost their retirement savings, such as saving through consumption platforms – Pensumo (pensión por consumo) Millas para el Retiro and Boost Your Super – and digital micro-pensions – pinBox Solutions.

Article from: file:///C:/Users/Pc/Downloads/Art%C3%ADculo%20European%20Pensions.pdf 

Auto-enrolment: Not a lifeboat for EM countries Why Em countriEs should considEr additional options to auto-EnrolmEnt With the rapid ageing trend in less developed parts of the world, emerging market (EM) governments are aware that they should boost pensions for retirement security. In parallel with this target, they have already introduced some policies, such as tax advantages, financial incentives, and education campaigns for retirement plan participants. However, looking at the current situation, the majority of EM countries still have limited pension savings. As a recent step, some EM governments have adopted auto-enrolment policies to build up pension pots. In the past five years, five EM countries have introduced auto-enrolment, inspired by the remarkable success of this behavioural policy in developed countries, such as the UK and New Zealand. Starting with Chile in 2015 and Turkey in 2017, three more Central Eastern Europe (CEE) countries – Poland, Lithuania, and Georgia also introduced auto-enrolment in 2019. Indeed, when looking at the features of these autoenrolment programmes, they are not much different than those in developed countries. Regarding financial incentives, both tax advantages and employer/state subsidies are available, being more generous in Poland and Turkey. But what are the opt-out rates in EM autoenrolment systems? In Chile, opt-out rates are about 75 per cent. While in Poland, almost 70 per cent of participants exit from the autoenrolment system; in Turkey, this ratio is close to 60 per cent. These opt-out rates are considerably higher compared to the experiences of the UK and New Zealand, where less than 15 per cent of participants exit from the system. An investigation of the reasons behind these high opt-out rates in EM countries reveals that the high share of low-income and informally employed groups are two main barriers in achieving high participation rates in autoenrolment schemes. For example, while in countries like New Zealand and the UK, the GDP per capita is higher than USD 40,000, in EM countries such as Poland and Lithuania, it is less than USD 20,000. Furthermore, the informal sector is a large source of total employment in countries such as Chile and Turkey. Considering that EM countries need long-term reforms to reduce poverty and informality, they should find alternative ways to auto-enrolment to boost their retirement savings. At this point, EM governments may incorporate behavioural and technological solutions to increase pension savings among the low-income and informal population. Before concluding, here are two suggestions from recent initiatives: Saving through consumption platforms – in these applications, a certain amount of individuals’ daily purchases (e.g., food and clothes) is automatically transferred to their saving accounts. In other words, these platforms transform individuals’ spending behaviour into a saving habit. Considering that consumption accounts for more than 60 per cent of EMs GDP, ‘saving through consumption’ apps may have significant potential to promote pension savings among low-income and informal populations. Some examples of these platforms include the Miles for Retirement (Mexico), Pensumo (Spain), and SuperSuper (Australia). Secondly, is digital micro-pensions – in most private pension schemes, employees’ contributions are deducted from their salaries at fixed amounts as monthly payments. However, since lowincome and informally employed groups have irregular income flow, they are more inclined to make small payments at flexible time intervals. In this regard, micro-pension apps, such as ‘PinBox Solutions’, allow their participants to contribute to their savings accounts in small amounts at daily and weekly frequencies. So far, auto-enrolment policies alone do not seem to be a lifeboat for EM pension systems, where the high share of scheme participants has low and irregular income. To this end, other EM countries that have plans to introduce auto-enrolment, should consider adopting complementary solutions to this behavioural policy to ensure adequate pension savings.


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