Too much choice is often unhelpful. Those endless menus in some Chinese restaurants in particular turn pleasurable indecision into an annoying chore. It is the same with pension schemes: faced with 50 or more funds to choose from, members of defined contribution pension schemes are most likely to give up and go for the default fund.
A survey by Watson Wyatt finds schemes run by trustees much less likely to overdo fund choice than those provided on a contract basis, typically by life insurance companies. Two thirds of contract-based DC schemes provided by FTSE 100 companies offer 50 or more fund choices, while the same proportion of trust-based schemes offer 10 or less funds.
Previous research has shown that the vast majority of DC scheme members invest in the default fund. They do not have the confidence to make their own choice.
