Informal sector workers need to provide for the reduction in income earning capacity during old age, just as formal sector employees do. Micro pensions, or long-term savings targeted at low-income, informal sector workers, aim to provide a flow of income to coincide with this decline in earned income. Effectively this works as voluntary ‘superannuation’ contributions by workers in the informal sector, where, particularly in developing countries, formal retirement pensions are rare.
A typical micro pension product is designed as a defined contribution plan providing for small, frequent contributions that are collected in a convenient way. These products will consist principally of medium- to long-term saving schemes that produce capital for reinvestment in human, social or financial assets that will produce income streams to support the non-working elderly.
Voluntary micro pensions are nascent in the Pacific region. To address this, in 2015, PFIP provided grants to the state owned national provident funds of Fiji and the Solomon Islands to carry out research on the viability of voluntary contributions of the informal sector. The studies may be accompanied by legislative changes and pilot projects.
The research will also investigate possible electronic payment channels as well as partnerships with intermediaries including commercial banks, microfinance institutions, savings clubs and NGOs that can improve the ease and cost of making the contributions. This research will also explore appropriate intermediaries, channels and microinsurance services that the institutions can provide for its members.