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ers do not learn by trial and error, and many find them complicated, due to the vast number of products available. Standardised financial information about pensions is now supplied; although, low literacy and numeracy rates among UK adults mean this information may not always be understood. Consumers may choose to purchase through a financial adviser, although these are often remunerated through commission for products that they sell. Subsequently consumers cannot always expect to be recommended the best product for their individual needs. This market failure can be known as asymmetry of information. Such information problems act as barriers to individuals saving for retirement. Barr and Diamond (2006) state that there may be efficiency and equity implications, since the worst informed are also the worst off financially. Choi et al (2004) found that simplifying pension options; such as reducing the number of funds, increases participation.

The UK Government could meet its equity objective through the use of a means tested benefit system, which would be paid to anyone of old age satisfying a given wealth and income eligibility criteria. Means testing provides a cost effective way of targeting those in need, compared to merely an increase in the basic state pension, (which is criticised for reducing incentives for working people to save for retirement).

There is an alternative method to the UK's Pay-as-you-go (PAYG) method currently in place. The funded system collects and invests contributions from the working population in a fund for when they are retired. Increased longevity means the level of annual spending that the individual will be able to finance will reduce, although the funded system offers a higher rate of return as individuals can invest in stock markets and bonds. With this higher expected return also comes increased investment. Unlike the funded system, the PAYG method allows aggregate risks to be spread across generations. The transition from PAYG to a funded system would also be difficult, as one generation would need to pay for their pensions, as well as their parents' generation.

Market failures, such as asymmetry of information provide rationale for the Government to intervene by regulating financial products. This is known as process regulation, as governments set standards for the process of buying and selling financial services. As well as regulating the market, the government subsidises pension saving, by allowing individuals who are contributing to personal private pensions to receive income tax relief. This tax relief encourages people to save in pension funds. The current UK tax system favours rich individuals, the Government could be more equitable by making subsidies more generous to middle/low class earners, (by limiting tax relief to the basic rate for everyone), or by placing tighter caps on the amount of contributions that attract tax relief.

Government expenditure has remained stable in the UK for the past five years, with social protection being the function that accounts for most of government expenditure. Government intervention in the pension sector may be required for a number of reasons. The government could provide a basic level of support through means-tested benefits, although this may reduce people's incentive to save for themselves. The alternative is that the government provides a minimum pension, and relies on additional private savi