Pension provision and retirement saving: lessons from the United Kingdom

We describe the trajectory of pension reform in the United Kingdom, which focuses on restraining the cost of the public program as the population ages while maintaining adequate income security for low-income households in retirement. Methods for achieving these aims have been to target public benefits to lowincome households, to permit individuals to opt out of the second tier of the public program into private retirement accounts, and to offer tax incentives to encourage additional private retirement saving. Frequent program reforms raise concerns as to whether households can make reasonable private saving provision in light of the growing complexity and potential shortcomings of individual decision-making. This paper sheds some light on these issues.