A reporting standard for DC pension plans

onsdag, 24 september 2014

Pension regulators stress the need for plan members to receive information allowing them to monitor their future pension wealth and the investment risk they bear.

This paper proposes a simple method for projecting DC pension benefits at retirement on a yearly basis, which may be a building block towards an industry reporting standard. Projections highlight how the current choice of asset allocation impacts retirement outcomes, and the results are compared with a money-back benchmark to clarify the trade-off between risk and return. Projections are also connected with ex post performance, in that the pension fund reports its yearly-realized performance relative to previous projections. The fund also revises its current forecasts of benefits at retirement as a function of its own realized returns. We discuss two reporting formats, one based on accumulated capital at retirement and the other on monthly pension wage.