Wharton Pension Research Council Working Papers

Reforming German Civil Servant Pensions: Funding Policy, Investment Strategy, and Intertemporal Risk Budgeting

Raimond Maurer, Goethe University
Olivia S. Mitchell, The Wharton School, University of Pennsylvania
Ralph Rogalla, Goethe University

The published version of this Working Paper may be found in the 2009 publication: The Future if Public Employee Retirement Systems.


We analyze the risks and rewards of moving from an unfunded defined benefit pension system to a funded plan for civil servants in Germany, allowing for alternative portfolio mixes using a Monte Carlo framework and a Conditional Value at Risk metric. First, we estimate contributions as a percent of salary that would fully fund future benefit promises for active employees. Second, we identify an investment strategy for plan assets that will minimize worst-case pension costs; this turns out to be 22% in equities, 47% in bonds, and 30% in real estate. Third, we explore the time path of pension fund asset shortfalls and the chances of contribution holidays for current and future generations. We show that moving toward a funded pension system for German civil servants can be beneficial to both taxpayers and civil servants.


Date Posted: 09 August 2019