Fluctuating Pensions: Germans Generally Interested But Still Cautious
ResearchZEW Study: Germans Willing to Accept Fluctuations in Pension Income
When given the choice between different phased withdrawal plans, people in Germany are prepared to accept fluctuations in the payout of private pensions, especially if this improves the prospect of higher returns. This is the result of a survey among more than 2,500 German citizens conducted by researchers from ZEW Mannheim and the University of Mannheim. According to the survey, a total of 40 per cent of respondents prefer phased withdrawal plans with medium risks (60 per cent stocks/40 per cent bonds) or high risks (100 per cent stocks). In reality, however, just 18.3 per cent of Germans invest in stocks.
“In an international comparison, Germans invest less often in stocks and funds. However, our survey clearly shows that many people are at least theoretically interested in equity-based retirement provision,” emphasises Professor Tabea Bucher-Koenen, head of ZEW’s “Pensions and Sustainable Financial Markets” Unit and professor at the University of Mannheim.
Up to now, research and political discussions have focused primarily on the savings phase of old-age provision. In order to better understand decisions in the retirement phase, the researchers conducted a survey on the willingness of households to invest in the capital market during the retirement phase. In a first step, the respondents chose their preferred phased withdrawal plan from three payout options with different risks and return prospects. In a second step, they could decide whether they wanted to keep the previously selected payout structure or switch to a lifetime annuity.
Individual backgrounds influence choice
Respondents with high risk tolerance, good financial education and experience in equity investing are more willing to invest in stocks during retirement. They are also less likely to switch to a lifetime annuity. The opposite is true for respondents with low risk tolerance, low financial literacy and no experience in equity investing: they are more likely to choose the risk-free investment option and to switch to a lifetime annuity, thus insuring their longevity risk.
“The individual financial situation also shapes the willingness of respondents to accept fluctuations in pension income. It can be said: the worse off people are financially, the more likely they are to prefer stability in regular pension payments,” comments Professor Martin Weber, professor at the University of Mannheim and ZEW Research Associate.
