Debunking the myth of the voluntary privatized defined contribution pension model: A case study of the old age savings strategies and the new pension system for informal workers in Ghana

This paper is an analysis of the new pension system for the informal workers in Ghana. Since 2005, Ghana has started to implement a public voluntary defined contribution pension system in Ghana which turned to a fully privatized scheme in 2010. According to the logic of the international financial institutions, this pension model is believed to be a suitable pension solution for developing countries. However, the take up rate of the system is just about 1% of the informal workers population after more than 9 years of implementation. This research finds that because of the institutional constraints, this system cannot be accessed by most of the informal workers and it is the direct cause of the low take up rate. This research further argues that there is system failure in the new pension system. On one hand, the system overlooked the fact that the existing old age saving strategy of the informal workers has already provided them an effective high-risk high-return investment opportunity. On the other hands, with low institutional capacity, the privatized defined contribution model cannot provide a low risk pension with basic pension. These findings can be considered as a counter argument to the privatized defined contribution pension model recommended by the international financial insti-tutions and suggests that a tax finance public pension maybe a more feasible pension solution in developing countries with similar socio economic background with Ghana.