The coverage of old-age protectionsystems is a central concern in developing countries. Whilemost countries mandate that workers make contributions to aretirement-savings plan, fewer than ten per cent comply inSouth Asia and Sub-Saharan Africa, as compared tohigher-income OECD countries which cover 80 per cent or moreof their workforce. Economic development is the majordeterminant of coverage protection for retirement systems,with the level of income per capita as an excellentpredictor of coverage rates. The note concludes that : a)coverage rates track income levels closely and evasion isdriven by the high cost of joining the formal sector; b)pension scheme design can exacerbate the evasion problem; c)a poorly designed and managed scheme should be reformedprior to attempts to expand its coverage; d) extendingfinancial solvency of a pay-as-you-go scheme is not a goodrationale for expanding coverage; e) a safety net can helpcover the inevitable gaps in a contributory scheme; f)defined contribution schemes tend to provide betterincentives for coverage; g) creative approaches to expandingcoverage include direct matching contributions for lowincome workers and finding ways to reduce transaction costsby harnessing existing groups.
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