Many young people will not actively manage savings. That's okay

The traditional dominance of defined benefit schemes, together with the state pension, has resulted in generations of workers who took little or no interest in building a pension pot for retirement because they assumed it was being done for them.

Now DB schemes are on the wane as the switch to DC continues apace, transferring investment decisions – and risk – from employers to individuals. However, many people affected by this do not yet fully understand it, and very few are actively planning how to respond.

For those interested in learning about other options, we should make it easy for them to do so

Changing this mindset will be a major challenge. Extensive efforts continue to be made to encourage DC members to become more actively engaged with their retirement planning, with frankly limited success so far.

The large majority of current DC scheme members are in default funds and many, especially those who have been auto-enrolled, are likely to be minimum contributors to those funds.

This is not surprising. For most people, actively managing their pension investments will be a step into the unknown. It requires a full understanding of the options available and the confidence to choose between them, which in turn is dependent on a reasonable understanding of financial markets and regular performance monitoring.

Dealing with apathy

Making decisions about the composition of a DC fund means taking certain risks with one’s own future. For people with no experience of investing, this can be a daunting prospect.

So daunting in fact that for people early in their careers for whom retirement seems a distant prospect, it may not seem worth the hassle. Self-selectors – ie those who actively engage with their pension plan – invariably tend to be older.

When you are in your 30s or 40s, you may be busy raising a family and focused on building a career. But when you hit your 50s and 60s retirement begins to loom larger in your mind. This is of course normal – the closer a thing is, the more real it seems.

So while there is no harm in trying to help young people understand investment risk, we need to accept that many of them won’t seek to actively manage their funds until they are much older.

This is not necessarily a problem as long as they are in a well-structured default fund that offers good capital appreciation, they understand that remaining in the fund is their choice and – most crucially – they are contributing as much as they can to it.

Retirement income is a function of two things: the amount of money put into the pension pot during its lifetime and the returns generated from that money. The focus in the early years should be to get people into the habit of saving. For those closer to retirement, more effort can be put into encouraging them to make more active investment choices.

As DC providers, we can facilitate this by ensuring that the default investment journey is well designed, including multiple asset classes in addition to the traditional equity focused funds. We should work hard to make members understand that even default options carry risks, and they need to be aware of what these are.

For those interested in learning about other options, we should make it easy for them to do so. By doing all of this we can lay the foundations from which a much more sophisticated understanding of investment risk may be reached later, when it really matters.

Paul Bucksey is head of UK DC at asset manager BlackRock