What are we doing with DC?

Abstract

As 5 years of partying in financial markets has been followed by a monumental hangover, the way defined contribution (DC) pension plans expose their members to risk and volatility has been thrown into high relief. What has intrigued me is why the approach to the asset allocation of DC pension schemes appears not to have kept up with developments in defined benefit. Taking this question as a starting point, this article finds few good reasons (but some bad ones). I have been influenced in my thinking by trying, with limited success, to justify the high volatility of DC investment prevalent in the English-speaking world to incredulous pensions experts from continental Europe, where much greater emphasis is placed on relative security of outcomes. They think we must be criminal, mad or both. © 2010 Macmillan Publishers Ltd.