Third gen DC plans to emerge in 5-10 years

Coverage, adequacy, technology, a lack of trust and lack of engagement with participants are the challenges that need to be addressed in defined contribution (DC) systems, according to new research from the Thinking Ahead Institute (TAI).

The research argued a DC ‘version 2.0’ was emerging with plans for a version 3.0 behind it, which would be characterised by hyper-customisation and integrated whole-of-life wealth management.

It argued the system needed to move beyond its role as a tax-effective savings vehicle and needed to be better customised to individuals, more cost-effective, better governed and more tech-savvy.

Bob Collie, head of research at TAI, said the need for change had been clear for a long time in the industry.

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“Even 10 years ago, we were talking of a version 2.0 of DC that was built around the purpose of providing income throughout retirement,” Collie said.

“It’s only recently that real progress has started to be made on that front. But momentum has been building, and we expect to see things develop much more quickly from here.”

The research was based on the findings of a survey and interviews of 10 leading DC organisations, which covered organisations’ mission, operations, governance, investment, member engagement, retirement income strategies and sustainability.

The research also found despite the DC market being driven by local considerations, global themes emerged including the focus on retirement income, the drive to scale and a definition of the role of employers.