Assuming loss aversion, stochastic investment and labor income processes, and a path-dependent target fund, we show that the optimal investment strategy for defined contribution pension plan members is a target-driven 'threshold' strategy. With this strategy, the equity allocation is increased...

A defined contribution pension plan allows consumption to be redistributed from the plan member's working life to retirement in a manner that is consistent with the member's personal preferences. The plan's optimal funding and investment strategies therefore depend on the desired profile of...

Dealing with the reluctant investor examines the governance of defined contribution (DC) schemes with reference to investment choice and, in particular, the design of the default fund. We explain where and why the current system fails to support DC scheme members and what steps can be taken to...

Cluster analysis is used to identify homogeneous groups of members of USS in terms of risk attitudes. There are two distinct clusters of members in their 40s and 50s. One had previously ‘engaged' with USS by making additional voluntary contributions. It typically had higher pay, longer tenure,...

We portray the valuation of financial investments as mental time travel. In a series of thought investments, a $1 invested in an investment fund is projected forward in time and then discounted back to the present, both exponentially and hyperbolically. These thought investments feature...

Using a unique dataset that covers UK defined-benefit pension fund asset allocations over the past 25 years, we study the investment behavior of pensions funds. The results suggest that pension funds display strong herding behavior, and tend to herd in subgroups, moving in and out of different...

PurposeTo portray the valuation of financial investments as mental time travel. Design/methodology/approachIn a series of thought investments, $1 invested in an investment fund is mentally projected forward in time and then discounted back to the present – with no objective time passing. The...

Assuming the loss aversion framework of Tversky and Kahneman (1992), stochastic investment and labour income processes, and a path-dependent fund target, we show that the optimal investment strategy for defined contribution pension plan members is a target-driven ‘threshold' strategy, whereby...

A defined contribution pension plan allows consumption to be redistributed from the plan member's working life to retirement in a manner that is consistent with the member's personal preferences. The plan's optimal funding and investment strategies therefore depend on the desired profile of...