RT Journal Article
SR Electronic
T1 A Framework for Designing Investment Strategies for Default Retirement Plans
JF The Journal of Retirement
FD Institutional Investor Journals
SP jor.2020.1.081
DO 10.3905/jor.2020.1.081
A1 Edwin Lung
A1 Craig Roodt
A1 Laura Ryan
A1 Geoffrey J. Warren
A1 Kirsten Wymer
YR 2020
UL https://pm-research.com/content/early/2020/12/30/jor.2020.1.081.abstract
AB We identify and discuss four key elements to address when designing the investment strategy for default retirement plans: whether to cater for member needs or their wants, objectives, the member for which the default is being designed, and risk appetite. Addressing these design elements requires making assumptions about the member, of which the literature provides limited guidance to plan sponsors. We outline the main assumptions and demonstrate the potential impact on retirement experience through illustrative models. We find that mismatches between the member and the way that they are characterized can adversely impact on welfare.TOPICS: Long-term/retirement investing, retirement, portfolio management/multi-asset allocation, portfolio theoryKey Findings▪ We identify and discuss the elements that retirement plan providers should address when designing investment strategies for default members, highlighting the issues and challenges involved.▪ The four elements are: whether to cater for member needs or their wants; objectives; the member for which the default is being designed; and risk appetite.▪ Illustrative modelling underlines the importance of assumptions about objectives and risk appetite.