Performance Capital Flows in DC Pensions

Are defined contribution (DC) pension funds' capital flows sensitive to performance? We examine pressures from individual account holders who can switch their pension managers. Using novel data on retirement accounts for nearly 10 million individuals, we analyze switching behavior based on the plan’s risk profile. Switching across managers within the same pension product is not uncommon, and the tendency to change managers rises over time. Capital flows are sensitive to and increase with fund performance. This sensitivity creates pressure on managers, shaping their incentives and portfolio decisions. A quasi-exogenous increase in outflows leads managers to shift toward higher-yielding bond holdings.