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Title:Money-back guarantees in individual pension accounts: Evidence from the German pension reform PDF Logo
Authors:Maurer, Raimond H.
Schlag, Christian
Issue Date:2002
Series/Report no.:CFS Working Paper 2002/03
Abstract:The German Retirement Saving Act instituted a new funded system of supplementary pensions coupled with a general reduction in the level of state pay-as-you-go old-age pensions. In order to qualify for tax relief, the providers of supplementary savings products must offer a guarantee of the nominal value at retirement of contributions paid into these saving accounts. This paper explores how this “money-back” guarantee works and evaluates alternative designs for guarantee structures, including a life cycle model (dynamic asset allocation), a plan with a pre-specified blend of equity and bond investments (static asset allocation), and some type of portfolio insurance. We use a simulation methodology to compare hedging effectiveness and hedging costs associated with the provision of the moneyback guarantee. In addition, the guarantee has important implications for regulators who must find an appropriate solvency system for such saving schemes.
Subjects:Pension Finance
Shortfall Risk
Long Term Investment
Regulation
JEL:G11
G23
G28
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-9932
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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