Life-Cycle Patterns in the Design and Adoption of Default Funds in DC Pension Plans

30 Pages Posted: 5 Jan 2016

See all articles by Joachim Inkmann

Joachim Inkmann

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Zhen Shi

University of Melbourne; Financial Research Network (FIRN)

Date Written: October 31, 2014

Abstract

We argue that we should see a negative relationship between the share of risky assets in the default fund of a defined contribution (DC) pension plan and the average plan member age if trustees design the default fund in line with predictions from the life-cycle portfolio choice theory. Adoption of the default fund should be low in DC plans with high member age dispersion if default funds are indeed designed for the average plan member and members become aware of this. From analyzing a panel data set of Australian DC pension plans, we obtain results that are consistent with both hypotheses.

Keywords: Pension plan, default fund, defined contribution, life-cycle portfolio choice

JEL Classification: -

Suggested Citation

Inkmann, Joachim and Shi, Zhen, Life-Cycle Patterns in the Design and Adoption of Default Funds in DC Pension Plans (October 31, 2014). Netspar Discussion Paper No. 10/2014-102, Available at SSRN: https://ssrn.com/abstract=2710557 or http://dx.doi.org/10.2139/ssrn.2710557

Joachim Inkmann (Contact Author)

University of Melbourne - Department of Finance ( email )

Level 12, 198 Berkeley Street
University of Melbourne, Victoria 3010
Australia
0061 3 9035 8177 (Phone)

HOME PAGE: http://orcid.org/0000-0002-5526-7648

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Zhen Shi

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia
0061 3 9035 8173 (Phone)
0061 3 8344 6914 (Fax)

HOME PAGE: http://www.finance.unimelb.edu.au/who/staffweb.cfm?StaffNo=135

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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