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Money-back guarantees in individual pension accounts : evidence from the German pension reform
(2002)
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 money-back guarantee. In addition, the guarantee has important implications for regulators who must find an appropriate solvency system for such saving schemes. This version June 17, 2002 . Klassifikation: G11, G23, G28
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. Specifically, we offer answers to the following questions: 1. How can the plan be designed to control cash-flow shortfall risk, so as to mitigate the potential burden borne by future generations of taxpayers? 2. What is the optimal asset allocation for this fund as it is built up, to generate a maximum return while simultaneously restricting capital market and liability risk? 3. What are reasonable combinations of annual contribution rates and asset allocation to a state-managed pension fund, which will limit costs of providing promised public sector pensions? We anticipate that this research will interest several sorts of policymaker groups. First, focusing on the German case, the state and Federal governments should find it relevant, as these entities face considerable public sector pension liabilities. Second, our findings will also be of interest to other European countries, as most have substantial underfunded defined benefit plans for civil servants. In what follows, we first offer a brief description of the structure of civil servant pensions in Germany, focusing on their benefit formulas, their financing, and the resulting current as well as future plan obligations for taxpayers. Next, we turn to an analysis of the actuarial status of the Hesse civil servants’ pension plan and evaluate how much would have to be contributed to fund this plan in a nonstochastic context. Subsequently we evaluate the asset-liability and decision-making process from the viewpoint of the plan sponsor, to determine sensible plan asset allocation behavior. A final section summarizes findings and implications.
Die Altersvorsorge in Russland - Theoretische Analyse, aktuelle Rahmenbedingungen und ihre Umsetzung
(2005)
Das russische Rentenversicherungssystem befindet sich in der Krise. Wie in einer Vielzahl entwickelter Staaten auch, erodiert die Basis des umlagefinanzierten Rentensystems („Generationenvertrag“) auf Grund des demografischen Wandels. Dies wird verstärkt durch die mangelnde Wirtschaftskraft Russlands. Ausgangspunkt der Diskussion des russischen Rentenmodells in diesem Artikel ist die Darstellung der theoretischen Grundannahmen, die Analyse der aktuellen und zukünftigen Rahmenbedingungen sowie eine Prognose der natürlichen und räumlichen Bevölkerungsbewegung in Russland. Hierauf folgt die Präsentation der gegenwärtigen Situation einschließlich der bereits erfolgten ersten Schritte zu einer umfassenden Neuordnung des Rentenversicherungssystems sowie die Darstellung von „hot steps“ auf dem Weg zu einer nachhaltigen Alterssicherung.
Rentenreform in Russland : heutiger Stand und Entwicklungsperspektiven im internationalen Vergleich
(2006)
Das Rentensystem ist ein wichtiges Element jeder modernen Volkswirtschaft. Heutzutage werden Rentenreformen sowohl in den Industriestaaten als auch in den Transformationsländern diskutiert und praktisch umgesetzt. Jedoch sind die Ursachen bzw. Ziele der Rentenreformen in einzelnen Regionen zu unterscheiden. Während der demographische Wandel in den Industriestaaten zur Notwendigkeit der Erhöhung der Einnahmen bzw. Kürzung der Ausgaben der Rentensysteme geführt hat, kämpfen die Transformationsländer mit den Folgen des sozialistischen Systems der Alterssicherung und den Problemen des Transformationsprozesses. Vor diesem Hintergrund diskutiert diese Arbeit die Notwendigkeit sowie die ersten Schritte der Umsetzung der Rentenreform in Russland, setzt diese in Relation zu den Reformschritten in Lateinamerika und Osteuropa und analysiert die Perspektiven zukünftiger Reformen in Russland.
This paper examines thoroughly the Chilean Pension Reform, giving first an overview of the mandatory saving plan, the relevant institutions, and the rules for transition from the old to the new system. The main part of the paper contains a critical evaluation of the reform, in particular the macroeconomic performance with respect to capital formation and growth, and the effects on the savings rate as well as on the rates of return and labor market are discussed. Furthermore, the development of capital markets is reviewed. A short critique is presented with respect to intergenerational distribution and risk sharing as well as with respect to the social consequences. This paper is the result of a CFS sponsored research project. A preliminary version was presented at the meeting of the committee of Social Policy of the Verein fuer Socialpolitik, May 1999 and at the 55th Congress of IIPF, 23-26 August 1999, in Moskow.