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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

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 results show the volatility of the internal rate of return to be significantly higher under the actual policy. We furthermore find that the sustainable internal rates of return are close to zero for the youngest male cohorts and positive for females for optimistic growth scenarios. In more realistic scenarios things turn worse.

Suggested Citation

  • Heidler, Matthias & Raffelhüschen, Bernd, 2005. "How risky is the German pension system? The volatility of the internal rates of return," FZG Discussion Papers 6, University of Freiburg, Research Center for Generational Contracts (FZG).
    • Handle: RePEc:zbw:fzgdps:6
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    Cited by:

    1. 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.

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    More about this item

    Keywords

    Risk; internal rate of return; sustainability;
    All these keywords.

    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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