June 1, 2014

Defining 'Defined Ambition' Pension Plans: Conclusions From An International Conversation

“Ambition: a strong desire to do or achieve something, typically requiring determination and hard work.” 


An International Conversation

There is a growing recognition around the world that we must move beyond the tiresome ‘DB vs. DC’ debate if we are going to design and implement pension arrangements suitable to 21st Century realities. A very recent confirmation of this resolve was a June 5 workshop held at Rotterdam’s Erasmus University. In addition to the Netherlands, workshop participants came from Australia, Canada, Sweden, the United Kingdom, and the United States.

The Dutch pensions think tank NETSPAR initiated the event in its role of providing thought-leadership in transitioning the second pillar of the Dutch pension system out of its current troublesome ‘Collective DC’ framework into a less complex, more functional ‘Defined Ambition’ (DA) version. NETSPAR invited a multi-country delegation of supporters of the International Centre for Pension Management (ICPM) based at the University of Toronto’s Rotman School of Management to participate in the workshop in order to broaden the range of perspectives on what 21st Century DA pension plans could/should look like. This Letter summarizes the workshop highlights and this writer’s take on its key conclusions.

Addressing the Adequacy-Affordability-Safety Conundrum

There was broad workshop consensus that the historical DC and DB narratives have both become increasingly problematical. On the DC side, serious adequacy and safety questions have come to the fore. For example, is the savings rate while working high enough to ultimately generate an adequate pension? Who invests the pension pot? How do people make their accumulated pension pot last their entire post-work life? On the DB side, employers are increasingly raising pension affordability questions, and withdrawing from their traditional role as pension risk underwriters.

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