The biggest pension system in the world is in the United States, where for decades the defined benefit (DB) plan ruled the roost. But since the 1980s the defined contribution (DC) plan has taken root, and as many corporations have shied away from the cost of a DB guarantee, DC now dominates the scene in the private sector. In fact, the trend from DB to DC is virtually universal, not just an American phenomenon. We have not devoted this book to a discussion of the sustainability of social security systems around the world, or bemoaning the triumph of DC over DB, or calling for new legislation that will miraculously solve all problems. Our approach is more pragmatic. We point out where the DC system, as it currently operates, is inefficient, and show how improvements in two areas can make it an extremely productive force for generating postretirement income.
The two inefficient areas are in accumulating assets, where investment returns are unnecessarily lower than they could be, and in the payout or decumulation phase, to which far too little attention is paid.
We use the United States as the basis for our arguments. But exactly the same principles apply to DC systems elsewhere, and, in fact, we use the experience of other countries to make our points, focusing on the DC system in Australia and on the "collective DC" approach in the Netherlands and Canada.
We are pleased that part of the solution is already coming into play. That makes us all the more eager to show that what ...