The Stakeholder Pension Lottery: An Analysis of the Default Funds in UK Stakeholder Pension Schemes

26 Pages Posted: 28 Jan 2005

See all articles by Alistair Byrne

Alistair Byrne

University of Edinburgh - Business School

Kevin Dowd

Nottingham University Business School (NUBS)

David P. Blake

City University London - Cass Business School

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics

Date Written: December 22, 2004

Abstract

We analyse the range of default funds offered by UK stakeholder pension schemes, against the background of research that shows the majority of pension scheme members passively accept the default arrangements offered by the scheme sponsor. We find the default funds vary substantially in their strategic asset allocation and in their use of lifestyle profiles that switch the member's assets to fixed-income investments as the planned retirement date approaches. We use a stochastic simulation model to demonstrate that the differences have a significant effect on the distribution of retirement income outcomes. We also find a wide range of outcomes for each type of fund, and that with commonly observed contribution rates defined-contribution pension schemes appear unlikely to replicate the levels of retirement income produced by typical defined benefit schemes.

Keywords: pension schemes, defined contribution, default funds, strategic asset allocation, lifestyle profile, stochastic simulation

JEL Classification: G11, G23

Suggested Citation

Byrne, Alistair and Dowd, Kevin and Blake, David P. and Cairns, Andrew J. G., The Stakeholder Pension Lottery: An Analysis of the Default Funds in UK Stakeholder Pension Schemes (December 22, 2004). EFA 2005 Moscow Meetings Paper; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=655884 or http://dx.doi.org/10.2139/ssrn.655884

Alistair Byrne (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom

Kevin Dowd

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

David P. Blake

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

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