Choosers, users, winners and losers: Observations on defined contribution

Defined Contribution (DC) participants rely on third parties such as trustees and their advisers directing crucial decisions on their behalf. This forms a peculiar symbiosis that this article examines, identifying and offering four observations on choosers and users: All default funds are not equal. The choice of entity to guide fund strategy is central to its success and has a significant influence on asset allocation and ultimately on the risk and return experienced by participants. It is not just about the destination. A piece of research that we recently did for the National Employment Savings Trust shows that many plan participants react badly to market volatility and may make adverse saving and investment decisions if they see their fund drop.There is no such thing as an average consumer. Recent work on segmenting members based on revealed preference and actual performance indicates that understanding of DC consumers is relatively rudimentary. We have much to learn from other industries such as the retail industry.Engagement is important to both the member and the sponsor and can be measured and monitored objectively. Finally, a brief conclusion about how we might better judge good and bad outcomes in DC.