The Victory of Hope over Angst? Funding, Asset Allocation, and Risk-Taking in German Public Sector Pension Reform
Public employee pension systems throughout the developed world have traditionally been of the pay-as-you-go (PAYGO) defined benefit (DB) variety, where pensioner payments are financed by taxes (contributions) levied on the working generation. But as the number of retirees rises relative to the working-age group, such systems have begun to face financial distress. This trend has been exacerbated in many countries, among them Germany, by high unemployment rates producing further deterioration of the contribution base. In the long run, public sector pension benefits will have to be cut or contributions increased, if the systems are to be maintained. An alternative path sometimes offered to ease the crunch of paying for public employee pensions is to move toward funding: here, plan assets are gradually built up, invested, and enhanced returns devoted to partly defray civil servants' pension costs. In this study, we evaluate the impact of introducing partial prefunding, paired with a strategic investment policy for the German federal state of Hesse. The analysis assesses the impact of introducing a supplementary tax-sponsored pension fund whose contributions are invested in the capital market and used to relieve the state budget from (some) pension payments. Our model determines the expectation and the Conditional Value-at-Risk of economic pension costs using a stochastic simulation process for pension plan assets. This approach simultaneously determines the optimal contribution rate and asset allocation that controls the expected economic costs of providing the promised pensions, while at the same time controlling investment risk.
Year of publication: |
2007
|
---|---|
Authors: | Maurer, Raimond H. ; Mitchell, Olivia S. ; Rogalla, Ralph |
Publisher: |
Frankfurt a. M. : Johann Wolfgang Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften |
Subject: | Ruhegehalt , Rentenreform , Kapitaldeckungsverfahren , Deutschland |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Chai, Jingjing, (2011)
-
Chai, Jingjing, (2011)
-
The potential effect of offering lump sums as retirement payments
Maurer, Raimond, (2015)
- More ...