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Beneficios Económicos Periódicos (BEPS): Protection for Old Age

Disruptive Innovations

The Colombian pension system faces challenges concerning coverage, sustainability, and equity, due to a great proportion of informal workers within the Colombian workforce, and the lack of having a culture of savings culture. Currently, the General Pension System (GPS) requires beneficiaries to earn a minimum salary throughout the year to contribute. The Colombian Government has been working through Colpensiones, the national pension agency, and the Ministry of Labor to offer alternatives to Colombian citizens that do not comply with the GPS requirements. One of these instances is the program Beneficios Económicos Periódicos (BEPS) that proposes to overcome the low coverage rates of the Pensions System by implementing a unique social innovation.

High rates of unemployment, informality, and low-income levels of a relevant portion of the Colombian population are among the factors responsible for the low contribution and coverage levels of the GPS. Furthermore, among Colombians who can contribute to the system, many are not able to contribute enough on a consistent basis in order to attain the minimum pension. In turn, this situation threatens the GPS sustainability in the mid- and long term, due to the limited number of contributors compared to individuals currently, or soon to become, pension age eligible. It is clear that due to the Colombian Government’s social and fiscal challenges that its ability to provide an adequate pension for everyone is hindered, especially for the most vulnerable groups of society.

This article aims to describe the innovative ways that BEPS seeks to improve the lives of people in its target population by offering flexible saving solutions that take into account the potential beneficiaries’ savings capabilities, limited and informal income, and low levels of financial inclusion.

BEPS is the most recent instrument designed by Colpensiones and the Ministry of Labor as a complement to the GPS that seeks to strengthen the Old Age Protection System (Sistema de Protección para la Vejez). The BEPS program offers individual savings accounts in which beneficiaries contribute voluntarily and can participate even if they earn less the minimum wage. Colombians aged 18 and older who earn less than the minimum wage can participate in the program and save voluntarily in their BEPS accounts while informally employed, whereas when they work formally they can contribute to the GPS. Once BEPS beneficiaries reach the pension age, they will receive their savings back, plus a 20 percent matching contribution from the State, in the form of a stable bimonthly income for the rest of their lives. Program participants can deposit money into their BEPS account at one of the official collection points around the country, that currently covers 96 percent of the country’s municipalities.

To encourage active participation in the program, the Government designed a series of incentives for beneficiaries, apart from the aforementioned matching contributions, they include: guaranteed purchasing power for the amount saved, no administrative fees, and life and disability insurance proportional to savings levels. Likewise, during the last four months of 2016 Colpensiones implemented a new lottery initiative granting weekly, monthly, and annual prizes to beneficiaries who actively made contributions to their savings through their BEPS accounts during the promotion. The design of the lottery initiative drew upon previous research focused on saving behaviors and motivators for the target population.

Before launching the lottery initiative, Colpensiones decided to collaborate with Institutions with a breadth of experience in evaluation to design and implement a rigorous evaluation that could guarantee accurate results and evidence to support future programs and policies. In order to carry out this exercise, during 2016, Colpensiones partnered with the National Planning Department (DNP), through Sinergia and with Innovations for Poverty Action (IPA), a non-profit organization that designs and implements randomized controlled trials of anti-poverty programs around the world. Randomized controlled trials are considered the gold standard for rigorous impact evaluations.

The research team comprised of international academics working with IPA and members of Colpensiones and DNP decided to test the impact of different SMS reminders on the savings behavior of BEPS users. This decision was based on several advantages of approach: ease of implementation (due to an established relationship between Colpensiones and the SMS provider), the low cost of data collection by making use of administrative data to measure changes in saving behaviors among participants, and the potential to rapidly scale the intervention in the future if it was found to be successful. Since Colpensiones communicates with BEPS users mainly through text messages, evaluation findings directly informed the Institution about the most effective messages to increase use of BEPS accounts (in terms of amounts deposited and frequency of deposits).

To ensure that the information analyzed would be relevant in the future in periods with and without an active lottery, the research team decided to design two macro categories of text messages: savings reminders and messages incentivizing participation in the lottery. Within each category, different types of messages were designed to measure more in detail the effectiveness of different content (for example: personalized messages, generic messages, and social comparison messages). Of the 426,505 users of BEPS (at the time of the study design phase) a total of 421,470 users were selected in the sample, of which 175,750 received messages designed for the evaluation as part of the treatment group. The study sample was randomly divided into 20 groups (due to the combination of all types of messages in the two macro categories) who either or did not receive messages, and stratified by different variables to ensure that each group had characteristics and compositions equal to the others. For the evaluation, between September and December 2016, a total of 1,597,714 text messages were sent to individuals in the treatment groups.

For the entire duration of the study the three institutions worked together to assure compliance with the evaluation design and the established objectives. The continuous involvement of Colpensiones proved to be key to the success of the evaluation, promoting, and supporting the research by guaranteeing the research team access to all relevant data and actively participating in the definition of all aspects of the evaluation. In a relatively short time (the collaboration started in August), the strategic alliance was able to design and implement the experiment, analyze the results, and plan the next steps. The evaluation results are already supporting Colpensiones and BEPS in defining communication strategies with program users, and they have also raised new questions that will be answered through new experimental evaluations currently in the design phase.

Taking into account the evaluation experience, and many of the other benefits of the BEPS program, it can be seen that the program has contributed to the gradual scaling up of the Colombian Old Age Protection System. Through the program, more and more Colombians will be able to financially secure their old age through accessing the program benefits at the time of retirement. The social innovation devised by BEPS arises from the need to respond to the challenges of the Colombian labor market and pension system affecting almost 15 million Colombians who do not have any support for their old age by introducing a voluntary and flexible saving structure. Likewise, this case demonstrates how strategic alliances between public institutions, non-governmental organizations, and academia can bring important advances in the testing, refinement, and promotion of social innovations. Despite the progress that has been made by BEPS, the Colombian Government will continue to work to promote a culture of saving and overcome the challenges presented by the pension system through new mechanisms, such as default contributions, sponsors, financial education, and work with unions.