Journal of Risk

The German model of risk distribution in supplementary occupational pensions

Csaba Burger, Gordon L. Clark


The German pension reform of 2001 decreased the level of public pensions. To offset the decrease, employees may direct a part of their gross wages to occupational pension plans. Since employers still have to guarantee the value of occupational pensions, investigation of the related financial risks is an important undertaking. This paper explores the nature of risk in German occupational pensions from a historical perspective. We then investigate the legal background of risk-related choices, as well as analyzing them empirically by using the proprietary data of a German pension provider with 276 000 enrollees joining between 2002 and 2009. The paper shows that the overall level of risk is kept low with conservative investment rules and mandatory reinsurance. Employers have a pivotal role in determining risk scope, and they show risk-averse behavior. Risk-related choices available to employees are thus limited by their employers. While occupational pensions are becoming increasingly important, employers are increasingly limiting their exposure to risk.

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