Life Cycle Savings in a High-Informality Setting—Evidence from Pakistan

The combined forces of population aging, weakening family and village risk-sharing networks,and low formal pension coverage will make financing elderly consumption a major challenge for the future. This studyexamines whether households in high-informality settings, where participation in pension schemes is rare, accumulatewealth over the life cycle and what mix of assets and liabilities composes that wealth. Pakistan is an idealsetting, with 88.5 percent of the population in informal employment and limited wide-scale social protectiontargeting the elderly. Data on housing wealth, land holdings, financial wealth, household durables, and ownedbusinesses are assembled from eight rounds of representative household surveys that span 18 years (2001–18). Changesassociated with age are disentangled from differences between cohorts and year effects by applying decompositionanalysis. The average informal Pakistani household accumulates 4.2 years’ worth of consumption between thehead’s ages of 25 and 65, mostly in the form of residential housing. Wealth accumulation is slower early in the lifecycle and picks up speed between ages 40 and 65. Land is an important part of rural households’ portfolio but growslittle over the life cycle (10 months’ worth). More liquid forms of wealth such as financial wealth also grow with age,but in much more modest amounts. Overall, consistent with improving living standards and expectations that familysupport may be less available than in the past, the fraction that reaches old age with significant net worth hasincreased over the period analyzed, suggesting a potential demand for long-term saving schemes designed for theinformal sector.