Christoph Anders, Max Groneck

The Optimal Portfolio of PAYG Benefits and Funded Pensions in Germany

Section: Articles
FinanzArchiv (FA)

Volume 73 () / Issue 3, pp. 255-291 (37)

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The combination of a pay-as-you-go (PAYG) and a self-funded pension system is studied from a portfolio perspective considering the trade-off between speculation and hedging. We analyze the German PAYG social security system and subsidized private savings (Riester pension). The return and the risk associated with a combination of both systems are simulated in a stochastic economy. Our results suggest that (1) a risk-minimizing structure of total retirement income still allows a fraction 5 percent to be financed via private savings, due to the benefits of hedging, (2) the optimal portfolio shares at a fixed total pension level imply high fractions of private savings even if agents are highly risk-averse, and (3) determining the optimal size of the total pension level under the current social security system implies only low additional private saving rates.

Christoph Anders No current data available.

Max Groneck No current data available.