Resource title

Money-back guarantees in individual pension accounts: evidence from the German pension reform

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Resource description

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.

Resource author

Raimond H. Maurer, Christian Schlag

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25381

Resource license

Adapt according to the presented license agreement and reference the original author.