Default funds in U.K. defined-contribution plans

A. Byrne, D. Blake, A. Cairns, K. Dowd

Research output: Contribution to journalArticle

19 Citations (Scopus)

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 languageEnglish
Pages (from-to)40-51
Number of pages11
JournalFinancial Analysts Journal
Volume63
Issue number4
DOIs
Publication statusPublished - 2007

Keywords

  • pension plans
  • investment

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