Proposing a stronger DC purpose

The latest paper from the Thinking Ahead Institute's DC working group

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).