By Justin van de Ven

Recent pensions policy debate in the United Kingdom has emphasised the role of behavioural myopia in justifying state involvement in retirement provisions (e.g. Pensions Commission, 2005, pp. 68-69, and op.cit.). In this regard, it appears that the public debate has gotten slightly ahead of the economic literature, as there currently exist very few studies that consider the empirical support for myopia on field data, or the practical implications of myopia for behavioural responses to policy alternatives. As a consequence, it is not possible to say how far myopia creates a need for publicly sponsored pensions, or whether a particular pension scheme is well suited to the needs of myopic individuals. This study explores the empirical support for myopia on field data for the UK. It then considers the implications of myopia for behavioural and welfare responses to the National Employment Savings Trust (NEST), which is a Defined Contribution (DC) pension scheme that will be introduced in the UK from 2012.1 The introduction of the NEST reflects a contemporary trend toward greater reliance on DC pension provision in the (third tier) private sector in the UK, and a similar trend among OECD countries more generally.2 It is being introduced following recommendations made by the Pensions Commission (2005), which found that administration costs made it unprofitable for the existing system of private sector pension provision to serve employees on modest incomes. The NEST is consequently designed to

Source: Sym Dinamics