A report released on Tuesday by Schroders studied defined contribution plan design in several countries to try to determine the most effective design. While the report states that participants should be able to make their own decisions about their plans, it acknowledges that left to their own devices, few investors are able to actually make decisions that lead to good outcomes.
“Few are interested or engaged in pension planning and many do not have the financial education or personal data to help in these decisions. Given this reality, members must be helped,” according to the report.
Default funds and auto enrollment go hand in hand, but the funds new participants are directed to need to be well-designed. “Clearly, identifying a single fund that is suitable for every new joiner is impossible due to the varying ages, periods to retirement, earnings, existing assets/financial position and other personal circumstances of each individual,” according to the report.
Retirement plans frequently stick to domestic investments for several reasons. They’re more familiar to the participants, first of all, but they’re also frequently not allowed to invest large proportions of the plan in foreign assets, according to Schroders.