(December 2, 2013) — Defined contribution (DC) plans’ menus may be moot points, as a survey has shown participants rarely use them.
AllianceBernstein’s poll revealed that almost half of 500 UK respondents have never made a change in their DC investments and 22% said they do not believe it is their responsibility.
“These findings provide a clear reminder that the majority of savers are not engaged when it comes to saving for retirement,” said David Hutchins, AllianceBertstein pension strategies head.
Furthermore, 41% of respondents said they believe monitoring their investments once every six months was adequate. More than half said they pay little attention to notices regarding their DC plans from their providers.
Such lack of responsibility extended to participants’ prospective retirement dates.
The survey found 73% of respondents had no or only a vague idea on when they will retire. More than half of participants over the age of 55 were unsure of their retirement dates as well.
“As peoples’ retirement plans change, through early retirement or delaying full retirement beyond state retirement age, employers and trustees must ensure their chosen investment strategy is flexible enough to adapt to their changing needs,” Tim Banks, pension strategies managing director at AllianceBernstein, said.
Though the majority of DC funds are organized around a fixed retirement date chosen by current employees, the survey suggested the approach might not be suitable for some participants.
“In order to meet today’s working environment, default investment strategies need to offer flexibility around members’ retirement dates, and provide for a smoother, more gradual de-risking process as they grow older,” Banks said.
In a white paper, Russell Investments echoed Banks and stated that fiduciaries must be more diligent and take on more responsibility in managing DC plans due to many participants’ inexperience in investing: “Most are really looking for their plan sponsor fiduciaries to provide prudent, appropriate investment options that give them the best chance of meeting their retirement income needs.”
The asset management firm suggested plan sponsors divest from mutual funds and move towards separate accounts and commingled funds to better ensure members’ futures.
Related content: DC: The Next Frontier for Fiduciary Management, The Upside of Managing DC Like DB, DC Participation Peaks, But Savings Rates Still Falling Short