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The consistency of UK pension fund trustee decision-making

Published online by Cambridge University Press:  14 February 2007

GORDON L. CLARK ,
EMIKO CAERLEWY-SMITH  and
JOHN C. MARSHALL
GORDON L. CLARK
Affiliation:
Labor and Worklife Program, Harvard Law School, Harvard University, Cambridge MA 02138, USA
EMIKO CAERLEWY-SMITH
Affiliation:
Oxford University Centre for the Environment, South Parks Rd., Oxford OX1 3QY, UK
JOHN C. MARSHALL
Affiliation:
Department of Clinical Neurology, Oxford University, Radcliffe Infirmary, Oxford OX2 6HE, UK.
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Abstract

An important research programme in the social sciences concerns the theory and practice of individual decision-making under conditions of risk and uncertainty. At the same time, it is apparent that western governments increasingly rely upon individuals to plan and maintain savings programmes to meet their income aspirations: the long-term retirement income of those outside of the welfare state depends a great deal on the competence and consistency of individual decision-making. In this paper, we use a set of problems requiring the same techniques of judgement to test the consistency of trustee decision-making. Respondents were a group of trustees drawn from select UK defined benefit pension plans compared with a larger group of Oxford undergraduates. It was found that many respondents were inconsistent across related problems requiring the application of probabilistic judgement. It is also shown that trustees were more consistent than many undergraduates and it appears that trustee education and professional qualifications can make a positive difference to consistent decision-making. A more challenging test that depends upon understanding the relationship between demographic ageing, immigration, and the financing of pay-as-you-go social security suggests that substantive knowledge and consistency of judgement are crucial components of expertise. Implications are drawn for the trustee institution and the wider debate over the role and significance of individual decision-making with respect to income aspirations.

Type
Issues and Policy
Information
Journal of Pension Economics & Finance , Volume 6 , Issue 1 , March 2007 , pp. 67 - 86
Copyright
© 2007 Cambridge University Press

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Footnotes

Support for this paper was provided, in part, by the National Association of Pension Funds (NAPF) being drawn from a larger research project on pension fund trustee competence. We would like to thank Christine Farnish, David Gould, and Geoff Lindey for their contributions to the project. We also benefited from participation in a seminar on behavioural finance with Daniel Kahneman and Richard Zeckhauser at the Säid Business School. Amy Dickman and Alexandra Littaye provided research assistance in (respectively) coding and analysing the data and reviewing the literature. Helpful comments on the project and previous drafts were made by Tessa Hebb, Esther Lim, Kendra Strauss, Ashby Monk, and Roger Urwin. The results and interpretations reported are the sole responsibility of the authors; none of the above should be held to account for any errors, omissions, or opinions expressed herein.