Abstract
Most defined-contribution (DC) pension plans give members a degree of choice as to the investment strategy for their contributions. For members unable or unwilling to choose their own investment strategies, many plans also offer a default fund. This article analyzes the U.K. "stakeholder" DC plans, which must by law offer a default fund. The default funds are typically risky but vary substantially among the providers in their strategic asset allocation and in their use of life-cycle plans that reduce risk as planned retirement approaches. A stochastic simulation model demonstrates that the differences can have a significant effect on the distribution of potential pension outcomes.
| Original language | English |
|---|---|
| Pages (from-to) | 40-51 |
| Number of pages | 11 |
| Journal | Financial Analysts Journal |
| Volume | 63 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 2007 |
Keywords
- pension plans
- investment