A review of international experience

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Matching Contributions for 
Pensions

Matching Contributions for 
Pensions
A REVIEW OF INTERNATIONAL EXPERIENCE
Edited by
Richard Hinz, Robert Holzmann, David Tuesta, and 
Noriyuki Takayama

© 2013 International Bank for Reconstruction and Development / The World Bank
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editors. 2013. Matching Contributions for Pensions: A Review of International Experience. Washington, DC: World Bank. doi: 
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v
Contents
Foreword  xi
Acknowledgments  xiii
Contributors  xv
Abbreviations  xxi
Part I.  Introduction and Conceptual Issues    1
1. 
Early Lessons from Country Experience with Matching 
Contribution 
Schemes  3
Robert Holzmann, Richard Hinz, and David Tuesta
2.  Policies to Encourage Private Pension Savings: 
Evidence from OECD Countries    27
Edward Whitehouse
Part II.  High-Income Country Experience    51
3.  Matching Contributions in 401(k) Plans in the United States    53
Nevin Adams, Dallas Salisbury, and Jack VanDerhei
4.  Riester Pensions in Germany: Design, Dynamics, 
Targeting Success, and Crowding-In    81
Axel Börsch-Supan, Michela Coppola, and Anette Reil-Held
5.  New Zealand’s Experience with the KiwiSaver Scheme    103
Geoff Rashbrooke
6.  The Impact of Matching on Savings in the U.K. Savings 
Gateway 
Program  133
Will Price
7. Matching 
Defi ned Contribution Pension Schemes in Japan    145
Noriyuki Takayama
8.  Matching Contributions and Compliance in Korea’s 
National Pension Program    161
Hyungpyo Moon

vi 
CONTENTS
Part III.  Middle-Income Country Experience    177
9.  Complementing Chile’s Pensions with Subsidized Youth 
Employment and Contributions    179
Hermann von Gersdorff and Paula Benavides
10.  Matching Contributions in Colombia, Mexico, and Peru: 
Experiences and Prospects    193
Luis Carranza, Ángel Melguizo, and David Tuesta
Part IV.  Developing Country Experience    215
11.  China’s Pension Schemes for Rural and Urban Residents    217
Mark C. Dorfman, Dewen Wang, Philip O’Keefe, and Jie Cheng
12.  Learning from the Early Experience of India’s Matching 
Defi ned Contribution Scheme    243
Robert Palacios and Renuka Sane
13.  Using Prepaid Contributions to Cover Mobile Workers in 
Cape 
Verde 
and 
Tunisia  261
Antoine Delarue
14.  Thailand’s Matching Defi ned Contribution Programs for the 
Informal 
Sector  275
Mitchell Wiener
Part V.  Behavioral and Design Issues    287
15.  Matching Contributions and Savings Outcomes: 
A Behavioral Economics Perspective    289
Brigitte C. Madrian
16.  Implementation Issues in Low- and Middle-Income Countries    311
Robert Palacios and Mike Orszag
Box
8.1 
The National Pension Scheme in Korea    162
Figures
2.1 
Expenditure on private pension benefits as percentage of total pension expenditure, 
in selected OECD countries, 1990 and 2007    29
2.2 
Sources of income of people over 65 in selected OECD countries, mid-2000s    29
2.3 
Contribution of public and private components to simulated lifetime benefits in 
21 OECD countries, 2008    31
2.4 
Impact of pension reforms on lifetime retirement income benefits in selected 
OECD countries     32
2.5 
Private pension coverage in selected OECD countries, 2009     33
2.6 
Relationship between private pension coverage and age and earnings in 
selected countries     33

CONTENTS 
vii
2.7 
Tax treatment of investment returns, private pension contributions, and 
withdrawals in selected OECD countries     36
2.8 
Tax treatment of benchmark savings and private pensions in selected 
OECD 
countries  36
2.9 
Correlation between coverage of voluntary private pensions and tax incentives for 
private pensions relative to benchmark savings    37
2.10 
Percentage of IRA and 401(k) saving that is new saving    38
2.11 
Revenues foregone from tax incentives for private pensions in selected OECD 
countries as a percentage of GDP and a percentage of public expenditure on 
pensions, 
2007  40
2.12 
Pensioners’ incomes as a percentage of population income in selected OECD 
countries, 
mid-2000s  42
2.13 
Coverage of voluntary private pensions compared with tax incentives for private 
pensions relative to benchmark savings in selected OECD countries     44
3.1 
Predicted employee contributions for selected persons and plan matching 
formulas  67
4.1 Subsidy as percentage of total (own plus government matching) contribution    85
4.2 
Development of Riester pensions (million contracts)    86
4.3 
Coverage by private and occupational pensions, 2003–10    87
4.4 
Percentage of households with private and occupational pension instruments, 
2003–10  88
4.5 
Fiscal costs of Riester pensions, 2003–10    88
4.6 
Uptake of Riester pensions by age group    91
4.7 
Uptake of Riester pensions by number of children    91
4.8 
Private pension instruments by number of children in 2009    92
4.9 
Private pensions by monthly household disposable income in 2009    92
4.10 
Uptake of Riester pensions by quintiles of monthly household disposable 
income  93
4.11 
Change in total saving after enrolling in a Riester plan     95
4.12 
Benefits from public and Riester pensions     97
4.13 
Filling the pension gap     98
5.1 
Coverage in occupational retirement schemes, 1990–2003    104
5.2 
Total and monthly enrollments in KiwiSaver, 2007–11    112
5.3 
Age at which member enrolled in KiwiSaver, 2007–11    113
5.4 
Age distribution of KiwiSaver members and KiwiSaver eligible population, 
June 30, 2011     113
5.5 
Percentage of eligible population enrolled in KiwiSaver, 2008–11    114
5.6 
Income distribution of KiwiSaver members and KiwiSaver eligible population, 
2010  115
5.7 
Annual KiwiSaver contributions by salary and wage earners, 2009/10    116
5.8 
Annual KiwiSaver contribution for nonsalary and nonwage earners, 2009/10    117
5.9 
Annual contribution by KiwiSavers with no income, 2009/10    117
5.10 
Member tax credit granted to KiwiSavers, by age, 2011    118
5.11 
Number of standard KiwiSaver scheme transfers, 2007–11    119
5.12 
Managed funds assets in New Zealand, by product category, 2007–11    121
5.13 
Distribution of KiwiSaver funds by asset class, 2008–12    122
5.14 
Percentage of assets invested in overseas assets by KiwiSaver, other retirement funds, 
and all managed funds, 2008–12    123
5.15 
Duration of optional KiwiSaver contribution holidays, 2008–11    124

viii 
CONTENTS
5.16 
Government KiwiSaver contributions as a percentage of total funds sent to 
providers, 2007–11     125
6.1 
Aggregate wealth in Great Britain, by income decile and type of wealth, 
2008–10     134
7.1 
Retirement benefits in Japan as of March 2011    146
8.1 
Coverage of Korea’s national pension system, 1988–2009    163
8.2 
Payment of pension contributions by subsidy recipients and nonrecipients in Korea, 
by level of income, 2007     173
9.1 
Number and percentage of pensioners in Chile, by type of pension    180
9.2 
Number of beneficiaries of Chile’s solidarity pension pillar, by type of benefit, 
December 
2011  181
9.3 
Unemployment rate among people 15–24 in selected countries, 2010     182
9.4 
Labor participation rate for young workers in Chile, by income decile, 2009    183
9.5 
Activity of population age 18–24 in Chile, by income decile, 2009    184
9.6 
Unemployment rate among people 18–24 in Chile, by income quintile, 2009    184
9.7 
Number and average amount of subsidies paid in Chile under the Social Security 
Subsidy for Young Workers, March 2009–December 2011    186
9.8 
Monthly SEJ subsidy in Chile, by level of income    187
9.9 
Number and average amount of SEJ subsidy paid in Chile     188
10.1 
Pension coverage in Colombia, Mexico, and Peru     194
10.2 
Pension coverage as a percentage of the labor force and GDP per capita in selected 
countries, early 2000s    195
10.3 
Labor informality and pension coverage in selected countries, early 2000s    196
10.4 
Pension coverage in Colombia, Mexico, and Peru, by household income level    207
10.5 
Nonagricultural middle-income workers in Colombia, Mexico, and Peru by 
employment category     208
10.6 
Pension coverage of middle-class nonagricultural workers in Colombia, Mexico, and 
Peru, by type of employment    208
11.1 
Rural pension participation and coverage, 1994–2010    219
11.2 
Rural pension system coverage in Chengdu and Guangdong    226
12.1 
Coverage of contributory pension schemes, by income level     244
12.2 
Pension system coverage in India, by income level, 2010     244
12.3 
Monthly enrollment in India’s New Pension Scheme, 2010–12     248
12.4 
Participation in India’s New Pension Scheme, by per capita income, 2011    248
12.5 
Probability of participating in India’s New Pension Scheme, by age and sex at 
mean 
income  252
12.6 
Disaggregation of India’s workforce, 2004    253
12.7 
Minimum pension contribution as share of income in India     254
13.1 
Sample tripartite contribution voucher    269
15.1 
Evidence on the effect of matching and saving from the H&R Block 
experiment  293
15.2 
Impact on Net Worth of Opening and Contributing to an Individual Development 
Account 
after 
Three 
Years  294
15.3 
Distribution of contribution rates at a firm that added an employer match: 
Firm 
A  297
15.4 
Distribution of initial contribution rates at a firm that changed its match threshold: 
Firm 
B  297
15.5 
Evolution of contribution rates over time: Firm B    297

CONTENTS 
ix
15.6 
Matching contributions and savings plan participation in firms with automatic 
enrollment  299
15.7 
Automatic enrollment for new hires and the distribution of savings plan 
contribution 
rates  300
15.8 
Quick Enrollment and savings plan participation: Firms C and D    303
15.9 
Impact of planning aids on savings plan participation    304
16.1 
Effect of subsidy on likelihood of participating in pension scheme in Peru, by 
income 
quintile  315
16.2 
Graphical presentation of annuity choices    319
16.3 
Choice between annuities    319
16.4 
Replacement rates from universal flat pension for hypothetical worker by 
income level     328
16.5 
Role of social pension after maturation of contributory scheme    328
Tables
3.1 
Percentage of active participants deferring enough salary to take full advantage of 
the maximum employer match, by company size    61
3.2 
Level of match offered by companies offering matching contributions, by 
company 
size  61
3.3 
Type of employer contributions, by company size    61
3.4 
Changes in employer contribution rates to 401(k) plans that adopted automatic 
enrollment between 2005 and 2009, by type of modification     71
3.5 
Inclusion of safe harbor plans in defined contribution plans, by company size    73
3.6 
Use of automatic enrollment in defined contribution plans, by company size    73
4.1 
Statutory incentives for supplementary pension provision, 2002–08    84
4.2 
Direct subsidies and associated savings in Riester plans, 2005–08    89
4.3 
Selected determinants of the demand for Riester and other private pension 
products  96
5.1 
Total cumulative enrollment in KiwiSaver, 2008–11    112
5.2 
Income sources of KiwiSaver members, 2010    115
5.3 
Percentage of KiwiSavers contributing at various rates, 2009–11     116
5.4 
Contribution rates of KiwiSavers by member join date, as of 2011    116
5.5 
KiwiSavers receiving the maximum tax credit, 2008–10     118
5.6 
Method by which members entered the KiwiSavers scheme, 2008–11    119
5.7 
Number and type of KiwiSaver scheme transfers, 2008–11    119
5.8 
KiwiSaver scheme numbers and total assets, 2008–11     120
5.9 
Allocation of KiwiSaver assets, 2011    121
5.10 
KiwiSavers on contribution holiday, 2008–11    123
5.11 
Cost of KiwiSaver to the government, 2008–11     126
6.1 
Timeline of the Saving Gateway    135
6.2 
Pilot participants’ approach to saving at beginning and end of Saving Gateway 
Pilot 1     137
6.3 
Mean and median saving balances in Saving Gateway Pilot 2    138
6.4 
Impact of Saving Gateway pilot on saving, consumption, and net worth    140
7.1 
Japanese social security at a glance    147
7.2 
Japanese occupational and individual pensions at a glance    151
8.1 
Number of people insured by Korea’s national pension, 2009    164
8.2 
Reasons for exemption from contributing to Korea’s national pension plan, 
2009  164

x 
CONTENTS
8.3 
Number of people covered by Korea’s national pension plan, by occupational and 
participation status, 2007    165
8.4 
Demographic characteristics of individually insured and noninsured people in 
Korea’s national pension plan    167
8.5 
Probit regression estimations of determinants of compliance with Korea’s national 
pension plan among individually insured people    168
8.6 
Size of matching subsidy to farmers and fishers in Korea    169
8.7 
Compliance with Korea’s national pension by subsidy recipients and nonrecipients, 
2007  170
8.8 
Demographic characteristics of recipients and nonrecipients of subsidized 
contribution to Korea’s national pension plan, 2007    171
8.9 
Contribution, registration, and total effects of subsidy on pension behavior of 
farmers and fishers in Korea    172
8.10 
Effects of income on pension behavior of self−employed workers in Korea    174
9.1 
Number and average income of contributors to Chile’s pension program, 
July 
2011  180
9.2 
Public expenditure on Chile’s youth employment subsidies, 2008–11    186
9.3 
Comparison of Chile’s youth employment subsidy programs    190
10.1 
Requirements for accessing the solidarity subaccount of Colombia’s Pension 
Solidarity Fund     202
10.2 
Matching schemes in Mexico    203
11.1 
Comparison of old and new pension schemes for rural and urban residents of 
China  222
11.2 
Participation rates in selected local rural and urban schemes    225
11.3 
Stylized Examples of Matching Subsidy Options    228
12.1 
Participation in India’s New Pension Scheme by people with and without other 
financial 
assets  249
12.2 
Logit regressions for determinants of participation in India’s New Pension 
Scheme  251
12.3 
Distribution of workers in India’s unorganized sector by income decile, 2004    253
12.4 
Median saving rate and life insurance coverage of workers age 20–50 in India’s 
unorganized sector (middle-income deciles), 2004    254
14.1 
Eligibility of formal and informal sector workers for pension programs in 
Thailand  283
14.2 
Features of pension programs in Thailand    283
16.1 
Tabular presentation of annuity choices    319
16.2 
Initial conditions affecting the design choice of a matching defined contribution 
scheme 
  323

xi
Foreword
E
stablishing robust, equitable, and effective social protection is essential to reducing 
poverty and boosting prosperity at all levels of development. The demographic transi-
tion that has already transformed most high-income societies will exert similar and grow-
ing pressures on others, reinforcing the role of pensions and savings for old age as a central 
pillar of social protection systems. 
Despite this increasing imperative, achieving full coverage and adequate bene-
fits within a financially sustainable pension system remains a difficult challenge for 
nearly every country. Some that had previously been able to provide generous benefits 
to earlier generations now face difficult reductions for future retirees and will need to 
establish supplementary elements of their systems to maintain adequate income for the 
elderly. Others must find ways to bring the dynamic and rapidly changing workforce 
of a global competitive economy into their systems to maintain the promise of security 
in old age.
After decades of reform and innovation ranging from individual mandates to cre-
ative forms of tax incentives, coverage of pension systems often remains at less than half 
of the economically active population—in part because the incentives for contributing 
to pension savings are often obscure or irrelevant to those who need this protection the 
most: young and low-income individuals with irregular earnings and little attachment to 
the formal labor force. Traditional forms of tax incentives have little relevance to those not 
paying income taxes, and participation mandates are difficult to enforce in the informal 
sector.
One possible solution that has emerged in recent years that offers the potential to 
overcome this challenge is the provision of contribution matches to provide an immediate 
and powerful incentive for participation in pension saving systems. Originating in several 
high-income settings there are now a number of innovations and substantial experience in 
low-income countries in using this design to stimulate coverage and savings. This experi-
ence now provides a rich opportunity for learning, not just from the longer experience of 
a few high-income countries but also the more meaningful South-South learning across 
developing countries.
This volume, which reviews the experience with matching pension contribu-
tions across the range of countries that have used the design, makes an initial, but 
critically important investment in this learning process. The description and analysis 
of this experience—which is the product of partnership and collaboration across many 
public and private institutions—provide an invaluable early assessment of the design 
to inform policy makers and practitioners as well as serve as a model for the kind of 

xii 
FOREWORD
cooperation that will be required to address this difficult challenge. At the World Bank, 
we look forward to being part of this learning process of how to best provide old-age 
security for all.
Arup Banerji
Director for Social Protection and Labor
The World Bank

xiii