Behavior of participants in a defined contribution pension scheme

Publication Date11 January 2013
Date11 January 2013
AuthorAlok Pande
Behavior of participants in a defined
contribution pension scheme
Alok Pande
Purpose – This paper aims to ascertain the behavioral issues in the usage of GPF (a DC scheme) by
government employees in India. Using a unique data set of employees working in a central government
office this paper attempts to ascertain whether the employees are utilizing the GPF in a way in which it
was intended to be.
Design/methodology/approach – The paper utilizes the hypotheses testing approach in studying the
behavior of participants.
Findings – The results suggest that employees in GPF accounts do not have sufficient balances to take
care of their retirement needs and they are using these accounts more as long term saving accounts
rather than retirement accounts. Besides, employees suffer from inertia in making contributions as well
as withdrawals from their GPF accounts. Finally,the data demonstrate that there are gender differences
in savings and women tend to have higher balances than their men counterparts.
Research limitations/implications Due to the small sample size the generality of the results is
Practical implications The resultshave the potential of influencing policy design in the post reform
pension system.
Originality/value – Although the pensions literature has extensively covered the liabilities of the
governments in defined benefit (DB) plans for their employees, not much literature is available on how
government employees are utilizing the benefits which were intended for them in both DB and defined
contribution (DC) schemes. The data set used in the study is unique and is the first attempt to
understand government pension benefits in an empirical manner.
Keywords GPF, Defined benefit, Defined contribution, Behavioral finance, India, Pensions
Paper type Research paper
Reforms in the defined benefit (DB) pension plans of the government servants is a worldwide
phenomenon. In India too, employees recruited in the Federal Government (mentioned as
central government hereinafter) after 1 January 2004 are subjected to a defined contribution
(DC) scheme. However those employees of the central government who are recruited up to
31 December 2003 and are covered under the DB schemes also have some DC
components in their overall pension package. One such DC scheme is the general provident
fund (GPF). Provident fund schemes are an important component of the pension plans. In
India, the government employees are covered by GPF whereas the private sector workers
are covered by employees provident fund (EPF). EPF scheme has been well studied in the
Indian context (see Srinivas and Thomas, 2003). However most of these studies have
analyzed the macro impact about the sustainability of the schemes given their investment
strategy and other management issues. Very little attempt has been made to study the
behavior of individual participants in these schemes using empirical data. Behavioral issues
of participants in DC pension plans have increasingly started attracting the attention of
researchers (Benartzi and Thaler, 2006) and some interesting results have been reported.
VOL. 7 NO. 1 2013, pp. 84-96, QEmerald Group Publishing Limited, ISSN 1558-7894 DOI 10.1108/15587891311301043
Alok Pande is based at the
Department of Financial
Services, Ministry of
Finance, Government of
India, New Delhi, India.
The author acknowledges the
data support and all the help of
the officers and staff members
of Bangalore GPO in
completing the study.

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