Missing ingredients: A modest allocation to private markets, including real estate, could have an attractive impact on DC pension outcomes
In the world of pension provision, a tipping point has been reached — defined contribution (DC) plans represented almost half of all pension assets globally in 2016, following growth at more than twice the pace of assets held in defined benefit (DB) pension plans, according to data from Willis Towers Watson.
Unfortunately for DC beneficiaries (who, unlike DB beneficiaries, personally bear the risk of their retirement income falling short of target or expectations), early studies have shown DC pension plans are lagging DB plans in terms of performance. A 2015 study published by the U.S. Center for Retirement Research, Investment Returns: Defined Benefit vs. Defined Contribution Plans, shows DC plans lagging DB plans by 0.6 percent to 1.4 percent annually between 1990 and 2012, depending on pension fund size.
Several factors have been suggested to account for the performance differential between DB and DC plans: an excessive focus on the operational aspects of