Why Don’t Lower-Income Individuals Have Pensions?

April Yanyuan WuMatthew S. Rutledge Jacob Penglase

IB#14-8

The brief’s key findings are:

  • Obtaining an employer pension involves four steps: 1) having a job; 2) working for a firm with a plan; 3) being eligible for the plan; and 4) taking up the plan.
  • For lower-income individuals, the weakest links in this chain are a lack of employment and employment with firms that do not offer a plan.
  • Take-up rates are less of a factor, but will become increasingly important as voluntary 401(k)s continue to replace mandatory defined benefit plans.
  • The most effective policy solution for boosting pension participation would be to provide all workers with access to a plan and automatically enroll them.