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

86 Pages Posted: 19 Jun 2020

See all articles by David P. Blake

David P. Blake

City, University of London

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics

Kevin Dowd

Durham Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 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.

JEL Classification: G22

Suggested Citation

Blake, David P. and Cairns, Andrew J. G. and Dowd, Kevin, Turning Pension Plans into Pension Planes: What Investment Strategy Designers of Defined Contribution Pension Plans can Learn from Commercial Aircraft Designers (April 1, 2008). Available at SSRN: https://ssrn.com/abstract=3611213 or http://dx.doi.org/10.2139/ssrn.3611213

David P. Blake (Contact Author)

City, University of London ( email )

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HOME PAGE: http://www.pensions-institute.org/

Andrew J. G. Cairns

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

Edinburgh, Scotland EH14 4AS
United Kingdom

Kevin Dowd

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

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