The Thinking Ahead Institute has today released research that describes an industry on the cusp of significant change. The challenges that need to be addressed in defined contribution (DC) plans include coverage, adequacy, technology, a lack of trust and a lack of engagement with participants.
The new research asserts that DC version 2.0 is now emerging, and behind this lies another generation of plans — version 3.0, which will be characterized by hyper-customization and integrated whole-of-life wealth management. The research goes on to state that the retirement plan needs to move beyond its role as a tax-effective savings vehicle and become more tech-savvy, customized to the individual, cost-effective and better governed.
“The need for change has been clear for a long time,” said Bob Collie, head of Research at the Thinking Ahead Institute. “Even 10 years ago, we talked of a version 2.0 of DC that was built around the purpose of providing income throughout retirement. It’s only recently that real progress has started on this front. But momentum has been building, and we expect things to develop quickly from here.”
The research draws on the findings of a survey and interviews with 10 leading DC organizations — covering the organizations’ mission, operations, governance, investment, member engagement, retirement income strategies and sustainability. Respondents demonstrated strong alignment in many areas, but there is, as yet, no clear winner in the battle between paternalism and libertarianism.
Even though each DC market is driven by local considerations, global themes did emerge. These include the increased focus on retirement income, the drive to scale and a redefinition of the employers’ role. The importance of the regulatory role should also not be overlooked in enabling and driving the shift to a stronger retirement plan, according to the research.
The report foresees continued industry consolidation in response to commercial, governance and technological demands. The growth of master trusts and other multiple-employer platforms is an important industry development.
Collie added, “The history of DC has largely been a story of evolutionary happenstance, rather than working toward a master design plan. DC has become the world’s dominant retirement savings vehicle, and work is needed if it will live up to the responsibilities of this role. The next few years will be pivotal ones in the development of retirement plans all around the world.”
About the Thinking Ahead Institute
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to changing and improving the investment industry for the benefit of the end saver. It has over 40 members around the world and is an outgrowth of Willis Towers Watson Investments’ Thinking Ahead Group which was set up in 2002.
Ed Emerman: +1 609 275 5162
Source: Willis Towers Watson Public Limited Company