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Turning pension plans into pension planes: What investment strategy designers of defined contribution pension plans can learn from commercial aircraft designers

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  • Blake, David
  • Cairns, Andrew
  • Dowd, Kevin

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 their development. In particular, there is very little integration between the accumulation and decumulation 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 analogy 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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  • Blake, David & Cairns, Andrew & Dowd, Kevin, 2008. "Turning pension plans into pension planes: What investment strategy designers of defined contribution pension plans can learn from commercial aircraft designers," MPRA Paper 33749, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33749
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    Cited by:

    1. Michel Aglietta & Antoine Rebérioux, 2012. "Financialisation and the Firm," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 23 Edward Elgar Publishing.
    2. Giuseppe Grande & Ignazio Visco, 2010. "A public guarantee of a minimum return to defined contribution pension scheme members," Temi di discussione (Economic working papers) 762, Bank of Italy, Economic Research and International Relations Area.
    3. Amarendu Nandy & Mukul. G Asher, 2009. "Managing Prolonged Low Fertility: The Case of Singapore," Working Papers id:1949, eSocialSciences.
    4. repec:bla:acctfi:v:57:y:2017:i:1:p:47-85 is not listed on IDEAS
    5. Castaneda, Pablo & Rudolph, Heinz P., 2011. "Upgrading investment regulations in second pillar pension systems : a proposal for Colombia," Policy Research Working Paper Series 5775, The World Bank.

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    Keywords

    Pension plans; Defined contribution; Investment strategy;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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