Investment strategy design for defined contribution pension plans
Last updated 21st October 2009 - Retirement planning requirements for individuals have become significantly more complex. This Insight report describes a coherent framework for applying stochastic asset modelling to the design and review of default risk-based investment strategies for DC pension schemes.
The widespread growth of Defined Contribution (DC) plans as the core retirement savings vehicle for individuals around the world has brought with it many risk management and regulatory challenges.
Ideally, members of DC schemes should have access to individual investment advice to allow them to construct a plan to help manage the attendant risks, but in practice it has not yet been possible to supply full, individually tailored advice to all DC members on an affordable basis. Instead what has evolved is the concept of default investment strategies that are deemed to be reasonable for any DC member and are used where an individual is uncertain what investment choice to make or doesn't actually make a choice.
In this report, Philip Mowbray explains why stochastic asset modelling should be deployed in the design and review of default risk-based investment strategies for DC pension schemes.
