Are Defined Contribution Pension Plans Fit for Purpose in Retirement

This Article considers the historical basis for the shift from defined benefit plans to defined contribution plans, the structural and practical shortcomings of defined contribution plans, alternate pension models, and adjustments to existing retirement plan models that may offer a degree of protection to plan contributors. Like the United States, Australia is now realizing the limitations of a defined contribution retirement system insofar as it relates the provision of reliable retirement income for a population with increasing life expectancy. Unlike defined contribution plans, defined benefit plans provide a benefit based typically on time served and a predetermined proportion of either career average or final salary. A successful and sustainable defined contribution system must address the short-comings of defined contribution plans. A properly integrated retirement plan should seek to protect contributors from three key financial risks: inflation, deviation from expected outcome, and longevity.