Designing a Defined-Contribution Plan: What to Learn from Aircraft Designers

Abstract

This article uses the framework of designing a commercial aircraft to illustrate how a personal defined-contribution (DC) pension plan should be designed if it is to achieve its objective of delivering an adequate and secure retirement pension. The article’s suggestions are based on similarities between a DC pension plan and an aircraft journey. For example, the strategic investment strategy is analogous to the aircraft, the plan provider is analogous to the aircraft operator, the contributions are analogous to the fuel, and the accumulation and decumulation stages are analogous to the climb and descent stages of the flight. The significant differences that exist between the two concepts are also highly instructive.