Alan T Perry 🇨🇦 on Nostr: The trouble with DC schemes, which really should not be called pensions at all, is ...

The trouble with DC schemes, which really should not be called pensions at all, is not just that the risk is borne by the employee, but that they assume a level of financial sophistication that most ordinary people don't have. The result is that an overwhelming majority of people simply take the default, vanilla investment option offered and hope for the best.

At the extremes, some are overly conservative with their investment pots, with low risk and low returns, leading to a smaller than possible pot at retirement. And some take on far too much risk, often leading to a smaller than possible pot if there's a financial crisis just before they retire.

Another issue that I have seen is management fees consistently exceeding excess returns, leading to negative value added. Investing in an exchange traded index fund will often produce better returns than a managed equity fund, net of fees. But of course these are not generally offered in DC schemes, which mainly benefit fund managers.