Does the type of pension matter?

Calculated Risk points out that final salary pension schemes are being killed off in the US as well as the UK.
But does this matter? One of the best discussions I've seen is this oldish paper (pdf) by David Blake of the excellent Pensions Institute.
He points out that defined contribution schemes aren't necessarily a bad deal for workers, especially for those who change jobs often. He estimates that a 25-year-old male can expect a pension of two-thirds of final salary with a total net contribution to a defined contribution scheme of just under 11% of earnings.
Common sense tells us defined contribution schemes shouldn't be too bad. In the long-run, wages and share prices should both rise at the same rate - in line with the economy. Sure, there's risk to a worker in a DC scheme - but people should in theory be compensated for taking risks. Remember - only a few years ago, companies with final salary schemes were taking contributions holidays because shares had risen so much. In DC schemes, workers would have gotten these gains.
Instead, there are two main problems with DC schemes. One is that contributions to them are often lower than contributions to final salary schemes. As David Blake said:

Yes, the type of pension scheme matters, but the level of pension savings matter most of all.

Second, DC schemes can be costly and badly invested, for example by idiots fund managers who think they can pick good stocks. But as Jane Galt points out, there are solutions to this. 

Comments

[dearieme]

"gotten these gains"? Bloody hell, next you'll be careening through the streets, referring to normalcy and parsing sentences for their meaning.

[dsquared]

surely the motivating assumption here is the one that all DB schemes are company-specific rather than industry-wide, which isn't the case in a number of systems.

[dsquared]

and

[Sure, there's risk to a worker in a DC scheme - but people should in theory be compensated for taking risks]

the whole point about risk pooling is that it doesn't matter very much that people are compensated "on average" for bearing risks if you're the one who gets stuck with the black queen.