Default funds in U.K. defined-contribution plans

Alistair Byrne, David Blake, Andrew Cairns, Kevin Dowd

Research output: Contribution to journalLiterature review

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. © 2007, CFA Institute.

Original languageEnglish
Pages (from-to)40-51
Number of pages12
JournalFinancial Analysts Journal
Volume63
Issue number4
DOIs
Publication statusPublished - Jul 2007

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