IAPF Spring 2018 Irish Pensions Magazine

IRISH PENSIONS MAGAZINE | SPRING 2018 | 31 FEATURE have been the preferred choice for all members up to the age of 55. For the final ten years before retirement, these have shifted to include bonds and/or cash. This was based on the DGF meeting its objective of CPI + 4%, but there were concerns about lower future returns. After considering a number of alternatives a revised Default Strategy was put in place. This has a 100% allocation to equities until age 45, a transition to 100% DGF until age 58. Then an individual assessment takes place and an individualised strategy is put in place to match the benefit the member is likely to take at retirement. Complementing Keith’s piece on “ Getting the DC Default Strategy Right ” was Dean Wetton of Dean Wetton Advisory Limited. Dean looked at alternative Default Strategies with particular emphasis on some of the UK Mastertrusts. who captivated delegates with his presentation “Behavioural Economics and Pensions: Some Experimental Investigations”. Beginning with a simple experiment with those present he asked “Who here believes they are a worse-than-average driver?” Needless tosay less than 1%responded in the affirmative. Stating that this is statistically almost impossible to be true, it highlighted how many of us believe we are better at somethings than we can prove. Despite being a firm believer in education, he follows the behavioural economic mantra: “Don’t Assume, Test”. Specifically with regard to pensions, Prof Lunn’s studies have shown that starting with a poor comprehension of products, members find the complexity and choice to be aversive to making decisions. Test subjects were given the same information as text and then again with graphics. Comprehension did not increase greatly but willingness to participate did. What is emerging from the data is that whilst it is difficult to increase understanding of pensions it is possible to influence members’ decisions through powerful default and strong framing effects. Further experiments plan to find ways to improve decision making. Next we heard a case study on DC Default Strategy by AIB’s Keith Gore. DGFs (diversified growth funds)