Most defined-contribution (DC) pension plans give members a degree of choice as
to the investment strategy for their contributions. For members unable or
unwilling to choose their own investment strategies, many plans also offer a
default fund. This article analyzes the U.K. “stakeholder” DC plans,
which must by law offer a default fund. The default funds are typically risky
but vary substantially among the providers in their strategic asset allocation
and in their use of life-cycle plans that reduce risk as planned retirement
approaches. A stochastic simulation model demonstrates that the differences can
have a significant effect on the distribution of potential pension outcomes.