Transcript Slide 1

The German model of
risk distribution in
supplementary
occupational pensions
Csaba Burger,
Gordon L Clark
Exeter, 7th January
2010
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Research background
• The German pension reform of 2001 was a milestone on the road towards
pension individualisation; it
• decreased the level of the public pensions;
• enhanced the voluntary, funded, occupational (and private) pension system
(Riester-pensions);
• and therefore shifted investment risks to employers and individuals.
• The aim of this research is to
• Understand the nature of risk involved in the new occupational pensions;
• Discuss the importance of the employee’s risk-related decisions;
• Investigate the employee-level determinants of risk-related decisions.
• Our paper
• Gives an overview of German occupational pensions from the nineteenth
century onwards;
• Explains the unique, low-risk environment of the German pension system;
• Reinforces existing research on risk-aversion and behavioural finance.
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Occupational Pensions in Germany – the legal
environment
Before 1974
Right to
occupational
pensions
Immediate
risk sharing
Institutional
risk sharing
At the
employer
All risk at the
employee
No strong legal
requirements
Sources: BetrAVG, VAG, Wiedemann (1991)
1974 – 2001
1974:
Occupational
Pensions Act
Some employee
rights
After 2001
2001: „Riester”
Pension Reform
Employee has the
right for an
occupational
pension
Employers bear the risk of pension
provision
Minor institutional
protection (with
some external
providers)
Complex
institutional
protection
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Two choices define the risk situation: scope and
sharing
Choice I:
Risk Scope
Choice II:
Risk Sharing (from the Employee’s View)
• Direct insurance
• Life insurance: taken by the
employer, beneficiary is the
employee
• Provided by life insurers
• Low administrative burden
• Defined benefit
• Guaranteed positive rate of return
• Permitted defined rate of return is
maximised for new contracts:
decreased from 3.25% in 2002 to
2.25% in 2008
• Pensionskasse
• Traditional institutions with the
exclusive mission of pension
provision
• Similar rules to direct insurance
• (German) Defined contribution
• Guaranteed non-negative rate of
return
• Nominal value of contributions
plus subsidies (less the cost of
insurance) must be guaranteed
• Pension funds
• New institutions in 2001
• Aim: to imitate the returns of the
Anglo-Saxon pension funds
• Liberal investment policies
Low risk in these
occupational pensions
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Investment and institutional regulations limit
occupational products’ risk exposure
Regulation of investment risks
Institutional regulation
• Regulated by the Insurance Act(s) and
Solvency II (EU-directive)
• Quantitative (asset allocation)
requirements
• Rules on permitted asset types,
asset mixing, geographical
regions, etc.
• More liberal rules for pension
funds
• Reporting and controlling processes
• Regular ALM reports
• Mandatory stress-tests with 4
scenarios
• Transparency requirements
• Tight supervision, intervention rights
(BAFin)
•
Liability order for pension provision:
1. External provider, if fails, then
2. Re-insurer: Protektor AG (for
pension funds: PSVaG), if fails,
then
3. Employer
•
Not all Pensionskassen are re-insured
– in exchange for even tighter
supervision
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The research question
Offer may be limited by the employer
Defined benefit
Offer determined
by the Employer
Direct insurance
Pensionskasse
(German)
defined
contribution
Research question:
What are the determinants of the
actual risk distribution between the
employer and the employee?
Pension fund
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Decisions are modelled by binary-logistic and multinomial
regressions on a unique, proprietary database
Dependent variables
1. Product choice
Data
2. Defined benefit or
defined contribution
• Database of a German occupational
pension provider
• 270 000 employees, linked to
• 12 000 employers
• Details of the pension contracts
• Enrolment dates from the start of
2002 till the end of 2008
Explanatory variables
•
•
•
•
Gender
Age in the year of enrolment
Yearly contribution amount
Source of financing (if there is
employee contribution)
• Enrolment year (2002, 2003, …, 2008)
Employer offer
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The analysis follows the two-steps of the sales process:
employer choice limits the employee’s options
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Findings reinforce existing theories and show the
specialities of the German situation
Results
• Similar results both for product choice and for DB-DC variables
• Usual risk-related variables
• Gender, age are have explanatory power: male and the young are more
risk-tolerant
• The higher the savings amount, the more risk the employee is willing to
take
• No employee financing implies the most risk-averse product
• Specific environmental characteristics
• The later the enrolment happened (2002-2008), the less risk the individual
was willing to take
• The financial crisis of 2008 hardly had any effect – results are a part of a
greater trend
• Employer: the larger the company, the more options are available; the
more likely employees choose risky products
• Germany is distinctive for the low risk environment rather than the low risktolerance
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Selected references
• Beckstette A. und Zwiesler H.J. (2004): ‘Die Abgrenzung beitragsbezogener
Pensionspläne aus Sicht des Asset-Liability-Managements’. Preprint Series.
Fakultät für Mathematik und Wirtschaftswissenschaften Universität Ulm
• Börsch-Supan, A., Reil-Held, A. and Schunk, D. (2008) ‘Savings incentives, old-age
provision and displacement effects: evidence from the recent German pension
reform’. Journal of Pension Economics & Finance, 7 (3): 295-319
• Burger, Cs (forthcoming) ‘The role of social partners in transforming the German
welfare state’. Draft version of the paper is available from the author at request.
• Clark G L, Knox-Hayes J, Strauss K (2009) ‘Financial sophistication, salience, and
the scale of deliberation in UK retirement planning’. Environment and Planning A
41(10) 2496 – 2515
• Strauss, K (2009) ‘Cognition, context, and multimethod approaches to economic
decision making’. Environment and Planning A 2009, volume 41, pages 302-317
• Wiedemann, G (1991) Die arbeitsrechtliche Entwicklung der betrieblichen
Altersversorgung in Deutschland 1920-1974. Archiv für Sozialgeschichte 1991/31,
pp 157-178.
[email protected]
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