A 100% equities strategy for a DC pensions plan can have a devastating impact. In this stylized example, retiring in 2007 would have resulted in a capital sum saved of over €500K. A colleague retiring two years later, in 2009, would have a retirement income of less than half.
Choosing the right investment strategy
of the employer.
Utilising a life cycle strategy may provide more stable results. The employee who retires in 2009 is still worse off than the one who retires in 2007 but the difference is less extreme. More importantly perhaps, the end result is far more predictable. Two years before retirement, the life cycle strategy would have converted the entire portfolio into cash. The reason that the result for 2009 is slightly lower than for 2007 is that the 2009 strategy was affected by the dotcom crisis in the first three years of the century, at which time the 2007 strategy had already started to move out of equities.