The pension revolution is better for savers

ONE OFTHE first things I learned about retirement finance is that there are only three ways to increase income once you stop working: Save more; work longer; take more risk.

- ALLISON SCHRAGER

This is true whether you have a traditional defined benefit plan or a defined contribution plan, such as a 401(k).And yet, the few people running pension funds, savers and much of the financial industry seem unable to accept this hard truth.

Defined benefit pensions are much less common in the private sector, having been largely replaced by defined contribution plans. But the delusion you can get something for nothing makes the traditional pensions much riskier than they appear.Making promises far into the future enables pension fund managers to fully embrace this fallacy as their investment strategy. Sure, defined contribution plans have their own risks, but those are transparent and there are no incentives to ignore risk. People worry defined contribution pensions made the world riskier, but many savers should be grateful they have control over their savings.