This literature review discusses how to design a default life-cycle asset allocation for a defined contribution (DC) pension scheme. This default option may be the same for all participants, or it could be customised to plan members’ profiles. In particular, customising the allocation towards the individual’s labour income profile, real estate exposure and social security benefits is key. Environmental, social and governance (ESG) considerations are becoming essential to pension plan members, who are demonstrating an increasing appetite for socially responsible (SR) investment. In terms of pension funds’ fiduciary duty, a key issue is to assess the performance of SR investment compared to conventional investment. Changing investors’ preferences towards SR investment can also change the equilibrium expected returns of SR vs conventional investment. Finally, through active ownership, pension funds members can play a key role and impact firms and society at large.

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RC - Author - BRIERE Marie
PhD, Head of Investors’ Intelligence Academic Partnership, Amundi Investment Institute