Behavior of participants in a defined contribution pension scheme

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 limited. Practical implications – The results have 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.