Abstract
Many, if not most, individuals cannot be regarded as ‘intelligent consumers’ when it comes to understanding and assessing different investment strategies for their defined contribution pension plans. This gives very little incentive to plan providers to improve the design of their pension plans. As a consequence, pension plans and their investment strategies are still currently in a very primitive stage of development. In particular, there is very little integration between the accumulation and decumu-lation stages. It is possible to produce well-designed DC plans, but these need to be designed from back to front (that is, from desired outputs to required inputs) with the goal of delivering an adequate targeted pension with a high degree of probability. We use the ana logy of designing a commercial aircraft to explain how this might be done. We also investigate the possible role of regulators in acting as surrogate ‘intelligent consumers’ on behalf of plan members.
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