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Assessing Default Investment Strategies in Defined Contribution Pension Plans


  • Pablo Antolín


  • Stéphanie Payet


  • Juan Yermo



This paper assesses the relative performance of different investment strategies for different structures of the payout phase. In particular, it looks at whether the specific glide-path of life-cycle investment strategies and the introduction of dynamic features in the design of default investment strategies affect significantly retirement income outcomes. The analysis concludes that there is no ?one-size-fits-all? default investment option. Life cycle and dynamic investment strategies deliver comparable replacement rates adjusted by risk. However, life cycle strategies that maintain a constant exposure to equities during most of the accumulation period, switching swiftly to bonds in the last decade before retirement seem to produce better results and are easier to explain. Dynamic management strategies can provide somewhat higher replacement rates for a given level of risk than the more deterministic strategies, at least in the case of pay-outs in the form of variable withdrawals. The length of the contribution period also affects the ranking of the different investment strategies with life cycle strategies having a stronger positive impact the shorter is the contribution period. Évaluation des stratégies d'investissement par défaut pour les plans de retraite à cotisations définies Ce document examine la performance relative de différentes stratégies d’investissement pour différentes structure de la phase de paiement. Il regarde en particulier si la forme spécifique des stratégies d’investissement à cycle de vie et l’introduction de caractéristiques dynamiques dans la conception des stratégies d’investissement par défaut jouent un rôle significatif sur les revenus de retraite résultants. Cette analyse conclue qu’il n’y a pas d’option d’investissement par défaut qui convienne pour toutes les situations. Les stratégies d’investissement à cycle de vie et les stratégies d’investissement dynamiques délivrent des taux de remplacement ajustés du risque comparables. Toutefois, les stratégies à cycle de vie qui maintiennent une exposition aux actions constante pendant la plus grande partie de la période d’accumulation, puis passent progressivement aux obligations, semblent fournir une meilleure performance en général et sont plus aisées à expliquer. Les stratégies à gestion dynamique peuvent fournir des taux de remplacement légèrement meilleurs pour un niveau de risque donné en comparaison avec les stratégies plus déterministes, au moins s’agissant du cas où les paiements se font sous la forme de retraits variables. La durée de la période de cotisation influence le classement des différentes stratégies d’investissement, les stratégies à cycle de vie ayant un impact positif plus important pour les périodes de cotisations plus courtes.

Suggested Citation

  • Pablo Antolín & Stéphanie Payet & Juan Yermo, 2010. "Assessing Default Investment Strategies in Defined Contribution Pension Plans," OECD Working Papers on Finance, Insurance and Private Pensions 2, OECD Publishing.
  • Handle: RePEc:oec:dafaad:2-en
    DOI: 10.1787/5kmdbx1nhfnp-en

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    Cited by:

    1. Butt, Adam & Khemka, Gaurav, 2015. "The effect of objective formulation on retirement decision making," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 385-395.
    2. Andrey Kudryavtsev & Shosh Shahrabani & Yaniv Azoulay, 2017. "Frequency of Adjusting Asset Allocations in the Life-Cycle Pension Model: When Doing More Is Not Necessarily Better," Bulletin of Applied Economics, Risk Market Journals, vol. 4(1), pages 13-33.
    3. Solange Berstein & Olga Fuentes & Nicolás Torrealba, 2011. "La Importancia de la Opción por Omisión en los Sistemas de Pensiones de Cuentas Individuales," Working Papers 44, Superintendencia de Pensiones, revised Jan 2011.
    4. Ade Ibiwoye & Lukman Ajijola, 2012. "An Actuarial Analysis of the Payout Options in Nigeria¡¯s Contributory Pension Scheme," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 3(6), pages 45-54, November.
    5. Yaniv Azoulay & Andrey Kudryavtsev & Shosh Shahrabani, 2016. "Accumulating approach to the life-cycle pension model: practical advantages," Financial Theory and Practice, Institute of Public Finance, vol. 40(4), pages 413-436.

    More about this item


    defined contribution pension plans; gestion des risques; investissement; investment; plans de retraite à cotisations définies; regulation; replacement ratios; retirement income; revenu des retraites; risk-management; régulation; taux de remplacement;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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