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How risky is the German pension system? The volatility of the internal rates of return

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  • Heidler, Matthias
  • Raffelhüschen, Bernd
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    Abstract

    In this paper we analyze exemplarily the volatility of the internal rates of return of the German pension system over the life-cycle of an individual born in 1957. The outcome is compared to an alternative defined-contribution or defined-benefit policy. Based on the actual data, our resultsshow the volatility of the internal rate of return to be significantly higherunder the actual policy. We furthermore find that the sustainable internalrates of return are close to zero for the youngest male cohorts and posi-tive for females for optimistic growth scenarios. In more realistic scenariosthings turn worse. --

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    Bibliographic Info

    Paper provided by Institut für Finanzwissenschaft, Albert-Ludwigs-Universität Freiburg in its series Discussion Papers with number 138.

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    Date of creation: 2005
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    Handle: RePEc:zbw:alufin:138

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    Keywords: risk; internal rate of return; sustainability;

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    1. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(1), pages 73-94, Winter.
    2. Axel Börsch-Supan, 2005. "Risiken im Lebenszyklus: Theorie und Evidenz," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 6(4), pages 449-469, November.
    3. Jochen Michaelis & Michael Pflüger, 2000. "The impact of tax reforms on unemployment in a SMOPEC," Journal of Economics, Springer, Springer, vol. 72(2), pages 175-201, June.
    4. Axel Börsch-Supan, 2005. "Risiken im Lebenszyklus Theorie und Evidenz," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 05069, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    5. Börsch-Supan, Axel, 2005. "Risiken im Lebenszyklus: Theorie und Evidenz," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 05-05, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    6. David Bradford, 1991. "Tax Policy and the Economy, Volume 5," NBER Books, National Bureau of Economic Research, Inc, number brad91-1.
    7. John McHale, 2001. "The Risk of Social Security Benefit-Rule Changes: Some International Evidence," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 247-290 National Bureau of Economic Research, Inc.
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