Employee Saving and Investment Decisions in Defined
Contribution Pension Plans: Survey Evidence from the UK

Alistair Byrne


In recent years there has been a significant shift in retirement income provision
in the UK from the situation where employers offer defined benefit pensions, to
one where defined contribution schemes are more common. This follows similar
trends in the US. In a DC scheme the individual employee bears the risk the pension contributions – and the investment returns they earn – are sufficient to fund their
retirement. The growing literature of ‘behavioural economics’ raises important
questions about the ability of most employees to make the strategic investment
decisions required by DC schemes. This paper uses data from a survey of the
members of a mid-sized UK DC pension scheme to explore the attitudes and
knowledge of individual employees faced with saving and investment choices in
their pension plan. The results are broadly consistent with previous US findings
in that many employees show limited knowledge and interest in their pension
arrangements. The key difference is that the UK scheme members do not appear
to have the enthusiasm for own-company stock often found in the US. The UK
scheme members also display a high level of conviction that owning property is a
better means of providing for retirement than investing in financial assets.

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