“The defined-benefit and (especially) defined-contribution pensions at present on offer both create arbitrary winners and losers at times of economic disruption,” writes Barker4Kate in a guest essay
Most economic shocks affect groups of households differently. That was true of the financial crisis of 2007-09, of the covid-19 pandemic and of. It is well-nigh impossible for governments to offset these impacts fairly . And although I expect central banks to succeed in bringing inflation under control, lessening the medium-term economic cost, that won’t undo the damage done to real incomes.
Volatility in asset prices in 2022 has drawn attention to the risks faced by individuals reliant on defined-contribution pensions, which work, in effect, as segregated savings accounts for each person signed up. Those planning to retire and take a large lump sum will find the value reduced by recent market movements, but risk-free returns have increased to support those looking to draw down over time.
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