Discussion Paper WP2004

One size fits all:  How many default funds does a pension scheme need?
David Blake, Mel Duffield, Ian Tonks, Alistair Haig, Dean Blower & Laura MacPhee.  
In this paper, we analyse the number of default investment funds appropriate for an occupational defined contribution pension scheme. Using a unique dataset of member risk attitudes and characteristics from a survey of a large UK pension scheme, we apply cluster analysis to identify two distinct groups of members in their 40s and 50s. Further analysis indicated that the risk attitudes of the two groups were not significantly different, allowing us to conclude that a single lifestyle default fund is appropriate.  
Key words:
investment choices, cluster analysis, risk attitudes, risk capacity, defined contribution pension schemes. JEL: G11, G41

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