ABSTRACT
This chapter focuses on some of the reasons for and consequences of market failure and the implications of these for designing a retirement system. It focuses on the potential additional distortions introduced by retirement income systems, including possible impacts on the level of national savings, labor force behavior, and international competitiveness. Most countries adopt explicit policies to encourage the provision of retirement income as their economies develop. Mandatory retirement programs are created and retirement program subsidies are provided on the assumption that they will improve social welfare. An effective collective intervention to offset the effects of myopia will cause people to set aside more of their earnings during their working years so that they can afford a higher living standard during their retirement years. The logic that suggests that the working-age population should be forced to set aside part of their incomes for retirement also suggests that retirees should be prevented from drawing down their accumulated benefit rights too rapidly.
