DC defaults & heterogeneous preferences

  • Jori Arts Jori Arts

In this thesis we research the welfare effects of a uniform default asset allocation strategy for an individual defined contribution scheme, in coherence with the Dutch first and second pillar
retirement benefits. Due to individualization, preferences between pension plan participants have become increasingly more heterogeneous, thus there is no evident solution to a uniform
default that applies to all participants. We find that by accounting for additional sources of pension income, such as the Dutch first pillar state pension, heterogeneity in labor income leads to a wide variety of preferred asset allocation strategies. If a single uniform default were to be offered, participants may suffer substantial welfare losses.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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