Investor Psychology - Part 2: Future of DC Investment Strategy
Expert View
Despite, or perhaps as a consequence of, the increasing sophistication of DC pension scheme investment models, the majority of DC members either ignore or fear the issue of pension investment.
June 2010
Despite, or perhaps as a consequence of, the increasing sophistication of DC pension scheme investment models, the majority of DC members either ignore or fear the issue of pension investment.
In this paper we will explore several of the key issues around engagement from the perspective of the emerging and influential discipline of behavioural finance. The issues examined will include whether excessive choice creates inertia; whether we can assess the tipping point at which pension contributions stop being a drain on income and become an attractive investment; and whether we can isolate the factors that lead to this lack of engagement.
Having dealt with the symptoms of disengagement the paper will then focus on establishing how far it is possible to identify opportunities for enhancing the impact of communication and active participation.
As more than two-thirds of all DC scheme members are invested in the default fund, according to the Pensions Regulator, the paper will examine whether this suggests that members are too passive, too financially illiterate, or too confused. If so, it is necessary to anticipate future best practice in default fund provision in order to take account of such influential factors.
