Turning Pensions Plans into Pension Planes: What Investment Strategy Designers of Defined Contribution Pension Plans Can Learn from Commercial Aircraft Designers

86 Pages Posted: 29 Apr 2009

See all articles by David P. Blake

David P. Blake

City University London - Cass Business School

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics

Kevin Dowd

Nottingham University Business School (NUBS)

Date Written: April 10, 2008

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.

Suggested Citation

Blake, David P. and Cairns, Andrew J. G. and Dowd, Kevin, Turning Pensions Plans into Pension Planes: What Investment Strategy Designers of Defined Contribution Pension Plans Can Learn from Commercial Aircraft Designers (April 10, 2008). Available at SSRN: https://ssrn.com/abstract=1396198 or http://dx.doi.org/10.2139/ssrn.1396198

David P. Blake (Contact Author)

City University London - Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 (0) 20-7040-5143 (Phone)
+44 (0) 20-7040-8881 (Fax)

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics ( email )

Edinburgh, Scotland EH14 4AS
United Kingdom

Kevin Dowd

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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