An assessment of the effects of financial literacy on pension planning and preparedness: A case study of members under the National Pension Scheme Authority (NAPSA) in Lusaka District, Zambia

Abstract

Despite mandatory coverage by the National Pension Scheme authority (NAPSA), most Zambian formal sector workers will retire below the 80% recommended income replacement rate. This study examined how financial literacy affects pension preparedness. The study was anchored in three complementary theories: the behavioural lifecycle hypothesis, the theory of planned behaviour, and Huston's financial literacy model. The target population comprised contributors employed in the formal sector and aged 20-60 years. A sample of 138 respondents was selected using simple random sampling. In addition to this, 24 experts from Napsa were selected by expert purposive sampling. The data was collected using questionnaires (n=138) and 24 expert interviews. Quantitative data were analysed using SPSS v.29, employing descriptive statistics, Pearson correlation, hierarchical regression, and mediation analysis (PROCESS Macro Model 4 with 10,000 bootstrapped resamples). Assumptions (linearity, normality, homoscedasticity, and multicollinearity VIF < 5) were verified. Qualitative data underwent thematic analysis, with data triangulation enhancing validity. The results have shown moderate aggregate literacy (M=3.37, SD=0.68), masking strong procedural knowledge (retirement rules, M=3.74) but weak analytical skills (investment, M=2.89). Pension planning behaviour was forced, as contributors did so in order to comply with statutory requirements rather than voluntarily (mandatory M=4.21 vs voluntary M=2.67). Financial literacy had a positive correlation with retirement preparedness (r = 0.527, p = 0.002). Mediation analysis discloses that the effect of literacy is indirect. Financial planning behaviour (27.4%) and system awareness (19.7%) mediate 47.1% of the total relationship between financial literacy and retirement preparedness (indirect B=0.194, 95% CI [0.087, 0.318]). Conceptual literacy alone is insignificant (β=0.06, p=0.552) when pension planning behaviour is incorporated into the model. Additionally, pension planning behaviour is the strongest predictor (β=0.38, p<.001) of retirement preparedness. The study concludes that pension preparedness is a function of behavioural reinforcement, not cognitive knowledge alone. Experts corroborated the findings by explaining that conceptual financial literacy would have a weak effect on retirement preparedness unless individuals follow it up with corresponding pension planning behaviours. The study concludes that pension preparedness is a function of behavioural reinforcement, not cognitive knowledge alone. Recommendations include shifting policy from informational campaigns to behavioural nudges, employer-supported planning tools, and simplified pension calculators.