Across the world, defined contribution has emerged as the dominant form of institutional retirement funding. And yet, with a few exceptions, DC plans offer a sub-optimal value proposition to their members. This is mainly because DC plans are trying to solve the wrong problem – maximising accumulated savings at the point of retirement.
In this paper, we argue strongly that the purpose of DC is to support post-work consumption. This orientation has several implications for the way DC plans operate. It calls for plans to integrate the accumulation and drawdown phases of a DC member: instead of targeting CPI-relative time-weighted returns to the point of retirement, practice needs to evolve to focus on whole-of-life money-weighted returns for individual members (or at the very least, member cohorts).