Smart defaults: Determining the number of default funds in a pension scheme

We propose a new methodology for the smart design of default investment fund(s) in occupational defined contribution pension schemes based on observable characteristics scheme members. Using unique dataset member risk attitudes and from survey large UK scheme, we apply factor analysis to identify single factors aversion, capacity ethical preferences, then cluster these two distinct groups members across age cohorts. find membership clusters depends number personal characteristics, with principal differentiating feature being that one group had previously engaged while other not. These identified can be utilised funds, including appropriate engagement strategies.