Do pension wealth, pension cost and the nature of pension system affect coverage? Evidence from a country where pay-as-you-go and funded systems coexist

This paper proposes a nested model, based on an additive random utility model, to analyze whether pension wealth and pension cost affect the probability that a worker affiliates to a pension program, and to observe differentiated effects regarding the nature of the pension system (pay-as-you-go or funded). The analysis focuses on Peru because the peculiar coexistence of a pay-as-you-go and a funded system allows observing first whether a worker is subscribed or not, and then his choice between pay-as-you-go and funded system. The data consists in five cross sections from the ENAHO between 2005 and 2009. Results show that changes on costs have a greater impact over the probability of affiliation than changes on benefits, and that changes affect more when applied to the funded system than when applied to the pay-as-you-go. Variables related with the contracting firm have a large impact. Hence, this paper provides a tool to evaluate measures to solve the coverage problems of pension programs.