October 2023

Europe’s defined contribution market poised for a boom

The defined contribution market in Europe is poised for significant growth, fueled by government reforms, growing importance of ESG for participants and increasing acceptance by stakeholders for DC to serve as a sustainable retirement solution. Figures released in June by the European Central Bank showed defined contribution plans making up 24.7% of retirement assets, at €646 billion ($680 billion). Cerulli Associates in 2022 projected compound annual growth rate of 9.6% for defined contribution in Europe over the next five years,...

September 2023

Best Practices for Defined Contribution Plans

By Nicole M. Boyson This paper provides operational and investment recommendations for ERISA 403(b) plans. Based on a review of academic literature and an empirical analysis, I recommend that plan investment menus include mostly passive index funds covering key investment categories, a full suite of index-based target date funds as the auto-enroll qualified default investment alternative, and a self-directed brokerage option. I also recommend that plan sponsors adhere to and regularly review the plan’s Investment Policy Statement, that the Retirement...

Higher fees for inclusion of ESG and private markets a ‘real barrier’ for DC schemes

The higher charges for incorporating environmental, social and governance (ESG) and private market investments is a “real barrier” for defined contribution (DC) schemes, which are reluctant to reverse the fall in charges seen over the past decade, according to WTW.The consultancy’s latest DC Pensions and Savings report found that average charges for DC schemes in the UK had fallen by 20 per cent, from 41 basis points in 2014 to 33 basis points in 2023.It noted that this was...

June 2023

Linear Risk Sharing in Intergenerational Pension

By Michail Anthropelos, An Chen, Steven Vanduffel & Morten Wilke  We introduce and analyze a novel collective defined contribution plan (CDC) which guarantees upon retirement at least a target benefit as a lump sum. The guarantee is provided by the remaining working generations under a pre-determined linear intergenerational risk sharing (IRS) rule. Through a simulation-based study, we show that the CDC scheme consistently outperforms the comparable individual DC scheme in terms of risk-adjusted performance. An extensive sensitivity analysis indicates that this...

US. Social Security’s woes highlight need for holistic plan

Given Social Security's uncertain future, defined contribution executives say that it's important for plan sponsors to offer participants holistic retirement planning and encourage additional savings. The Old-Age and Survivors Insurance Trust Fund, which covers retirees and their families, is now set to reach depletion in 2033, according to an April report from the Social Security Board of Trustees. If that happens, the trust's income would be able to pay 77% of its scheduled benefits, the report states. A reduction in Social...

May 2023

Industry Voice: Improving value in workplace DC pension schemes

A key component in value is offering properly diversified investments. If you compare the Local Government Pension Scheme (LGPS) and workplace DC schemes, both are funded UK occupational pension schemes with high numbers of active members but there is noticeable difference between their invested assets. Look at the range of funds offered by an LGPS pool such as Border to Coast and you will find both passive and active equity funds, corporate credit as well as a range of alternatives such...

Pension Reform: Conceptual Foundations and Practical Challenges

By Seamus H. Duffy & Oliver Giesecke Underfunded pension are the largest liability for state and local governments across the United States. As a result of increasing recognition of the associated risks, recent statutory funding mandates led to a sharp increases in required contributions, threatening city services and employee bases. As funding pressure mounts, pension reforms offer a viable tool for prudent economic policy. We propose five general principles that guide pension reform considerations and discuss how these principle stand...

April 2023

UK. PLSA sets out key issues for defined contribution reform

In the Pensions and Lifetime Savings Association’s (PLSA) regular column for Professional Pensions, the trade body’s director of policy and advocacy takes a look at defined contribution (DC) reform. It is hugely positive that pensions minister Laura Trott has wasted no time in setting out her vision for DC pensions. Her recent support for the Gullis Bill on reform of auto-enrolment to increase the amount of saving into workplace pensions is an important step towards achieving pensions adequacy and has a...

February 2023

Redington DC report reveals ‘complexities’ facing savers

The consultancy's inaugural Future of Retirement Income report - launched today (21 February) - asked industry experts for their take on key debates within DC saving. With the minimum pension age due to increase, the report looked at trends for DC savers nearing and in retirement, including member communications, investment, advice and product innovation. The report noted with increasing life expectancy and focus on DC pots, the industry should engage with debates, adding that Redington would launch a series of roundtable...

January 2023

Standardized, Unitized, Accretive Longevity Insurance: Lessons from the Differing Demand for Annuities and Life Insurance

By Andrew Stumpff Morrison The historic U.S. shift from defined-benefit to defined-contribution employer-sponsored retirement plans has produced, among other things, a reduction in sharing of the risk of outliving one’s retirement savings. Commercial annuity contracts are available to insure this risk, but despite efforts to encourage their acquisition, few people own them. Close comparison with another life-cycle risk – that addressed by life insurance, which is more widely purchased by consumers – highlights as a probable reason for this low...