This paper is intended as a manual for policy makers on the theoretical framework and design of formal retirement income security arrangements. It looks at the purposes and methods of providing income security for the elderly through formal arrangements. It explains the elements of designing an income security arrangement and examines the implications of different rules and methods of collecting contributions, making payments and managing retirement income security arrangements. Several issues have arisen in the current international debate with regard to the “reform” of income security arrangements, especially (but not only) because of demographic ageing. These issues (on the methods of funding, benefit calculations and management) are described and discussed in both their practical and theoretical contexts. The paper also develops a matrix for categorising the functional impacts of income security arrangements and evaluates different forms of income security design in terms of their functional strengths and weaknesses. The last section derives applications to the income security arrangements in Sri Lanka. It related the theoretical understanding with historical developments and political realities in identifying specific policy options to improve the adequacy, coverage, efficiency and sustainability of retirement income arrangements in the Sri Lankan context.

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