Correspondence: John Hibbert, Barrie & Hibbert, 48 Melville Street, Edinburgh EH3 7HE, UK. Tel: +44 (0)131 625 0206; Fax: +44 (0)131 625 0215; e-mail: john.hibbert@barrhibb.com

¹graduated in economics and accounting and then operational research, and gained over 20 years experience in the life insurance, asset management and securities industries. Until 1990, John was responsible for portfolio strategy at Prudential. From 1991–95 he led the equity quantitative research team at NatWest Securities. In 1995 he co-founded Barrie & Hibbert, an independent consultancy business based in Edinburgh servicing the savings industry, and DecisionsDecisions, a provider of on-line risk illustration software.

²graduated in mathematics and statistics and then operational research, and he has worked as a statistical research analyst on a large medical research study, and contributed to research journals in that field. Since joining Barrie & Hibbert four years ago, he has worked on a wide range of projects as well as specialising in the development of Barrie & Hibbert's interest rate modelling capability and DecisionsDecisions' financial models.

Revised 19 June 2002.

Abstract

This paper provides a first step to understanding the pensions 'lifestyle' problem and designing efficient solutions for savers. A stochastic simulation model is used to map out the benefits likely to be delivered from some conventional investment policies and switching policies. Benefits are measured in real and nominal terms and the distribution of final benefits is analysed as well as the variability of the built-up benefit.