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Volatility of Social Security Wealth: Political Risks of Benefit-Rule Changes in Germany


  • Christoph Borgmann
  • Matthias Heidler


We address the question of how the generosity of the German public pension systems' benefit rule has changed during the past three decades. In order to do so, we firstly outline the social security reforms of the past 50 years. Then, we illustrate political risk by measuring the volatility of social security wealth induced by the legislative benefit rule changes. Our results show that the standard deviation resulting in the scenarios and cohorts considered is well over 10%. Furthermore, it turns out that the gross social security wealth can be subject to losses between 30% and 60% over the life cycle.

Suggested Citation

  • Christoph Borgmann & Matthias Heidler, 2007. "Volatility of Social Security Wealth: Political Risks of Benefit-Rule Changes in Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(1), pages 83-106, March.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200703)63:1_83:vosswp_2.0.tx_2-o
    DOI: 10.1628/001522107X186737

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    References listed on IDEAS

    1. 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.
    2. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1335-1357, July.
    3. Hans-Werner Sinn, 1998. "The Pay-as-you-go Pension System as a Fertility Insurance and Enforcement Device," CESifo Working Paper Series 154, CESifo Group Munich.
    4. Arnds, Pascal & Bonin, Holger, 2002. "Frühverrentung in Deutschland: Ökonomische Anreize und institutionelle Strukturen," IZA Discussion Papers 666, Institute for the Study of Labor (IZA).
    5. Eekhoff Johann, 1985. "Altersvorsorge bei sinkenden Bevölkerungszahlen," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 34(1), pages 247-270, April.
    6. Schnabel, Reinhold, 1998. "Rates of return of the German pay-as-you-go pension system," Papers 98-56, Sonderforschungsbreich 504.
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    More about this item


    social security wealth; political risk; Germany;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy


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