The Effect of Financial Literacy on Participation in the Informal Sector Personal Pension Scheme in Accra, Ghana

Abstract

The informal sector contributes significantly to the Ghanaian economy. It contributes for more than 71.3 percent to employment creation and 70 percent to GDP in Ghana. However, the sector is the least covered in any form of pension. In addressing this, the government of Ghana introduced the Informal Sector Personal Pension Scheme in 2008 (Act 766), but after more a decade of its introduction, participation of the informal sector workers in the scheme is significantly low and the factors that will enhance increased participation have received little attention. This study sets out to assess the financial literacy of the informal sector workers and investigate whether financial literacy affects the participation of the informal sector workers in the personal pension scheme. This study used a descriptive survey design. Self- administered questionnaires were used to collect primary data of which 420 informal sector workers were sampled and used in the study. The Binary Logit Model was used to determine the probability of the informal sector workers to participate in the personal pension scheme given financial literacy. The study found that financial literacy among the informal sector workers is extremely low. It, was however, revealed that there is significant relationship between financial literacy and participation of the informal sector workers in the personal pension scheme. The policy implications proposed in the study were that the government, the National Pensions Regulatory Authority (NPRA), and Corporate Trustees should pay particular attention to financial literacy and provide financial literacy education and training for the informal sector workers.