Document Type
Working Paper
Date of this Version
1-1-2002
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.
Working Paper Number
WP2002-11
Copyright/Permission Statement
©2002 Pension Research Council of the Wharton School of the University of Pennsylvania. All Rights Reserved.
Date Posted: 06 September 2019
Comments
The published version of this Working Paper may be found in the 2003 publication: The Pension Challenge: Risk Transfers and Retirement Income Security.