IN A world of low investment returns, many a pension scheme is in trouble. In both Britain and America employers who have promised to pay workers a pension based on their final salary are struggling to cope with huge deficits.
But the problem is not confined to those with so-called defined-benefit (DB) pensions. It also affects those saving for retirement via a defined-contribution (DC) scheme, where both employer and employee contribute, and the worker takes charge of the pot when his career ends. In America the most popular form of DC savings are called 401(k) schemes after a section of the tax code.
In an article* in the Journal of Retirement, three authors from AQR Capital Management, an investment group, argue that workers in 401(k) schemes are simply not putting enough money aside.
What you get out of a pension depends on what you put into it. One would expect a DC pension to deliver a smaller income than a DB scheme because less money tends to be put in the pot. Total DC contributions average around 9% of payroll (6% from employees; 3% from employers). But figures from the Centre for Retirement Research at...Continue reading
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