Investment decision making in defined contribution pension plans

In recent years there has been a significant shift in pension provision in the USA and the UK from the situation where employers offer defined benefit pensions to employees, to a 'self-directed' defined contribution basis where the individual employee bears the risk that the pension contributions - and the investment returns they earn - will be sufficient to fund a comfortable retirement. This paper discusses some of the behavioural economics research relevant to assessing how well placed most employees are to deal with this greater responsibility. It also discusses some of the suggestions that have been made for using these behavioural findings to improve the design of defined contribution pension plans.