How does a unit-linked pension insurance work?
A unit-linked pension insurance combines the advantages of a share / fund savings plan with the advantages of a private pension insurance. By investing monthly contributions, for example in inexpensive ETFs (Exchange Traded Funds) in the form of insurance, high returns are possible on the one hand, but on the other hand you can also enjoy the advantages that a private pension insurance brings with it.
In contrast to the so-called “classic” private pension insurance, investments are made on the stock market, as already mentioned. There is no guaranteed interest here, as you might know from the contracts of mum and dad or grandma and grandpa. That also makes sense, because currently (2020) the guaranteed interest rate (discount rate) is just 0.9%. No retirement provision can be built up with this. The interest rate is even below the average inflation rate of around 2.5%. With a unit-linked annuity insurance, however, returns of 4-6% are absolutely realistic.
Long-term investment and broad diversification
You also bear the risk of the stock market, i.e. price fluctuations and (short-term) price losses. However, this is not a problem for a long-term investment, as the markets (also viewed historically) always go up.
However, if you spread your risk, for example through a global ETF or stock index, then you will also minimize fluctuations here.
In addition, good insurers also offer you what is known as process management in the years before you retire. This means that your money will be reallocated in safe investments (e.g. money market funds) approx. 5-7 years before your desired retirement date. This eliminates the risk that a large part of your capital will be destroyed by a stock market crash shortly before you retire. If that were the case, you would not have enough time to make up for it by the time you retire.
In short: You pay a monthly contribution of your choice (which you can adjust at any time). Your money is invested in the stock markets. And when you retire, you will receive a lifelong pension.
The pension factor – the Achilles tendon of your pension insurance
The amount of the monthly payments is based on the amount of capital saved and the so-called pension factor. This is stated per 10,000 euros of capital saved.
This means that if your (guaranteed) pension factor is 25 euros and you have 100,000 euros in your unit-linked pension insurance at the start of retirement, this would result in a monthly pension payment of 250 euros.
The pension factor must absolutely be guaranteed – 100%. This is immensely important. Otherwise the insurer can reduce this retrospectively. And if he does this, then of course your monthly pension will also be reduced.
Example of a guaranteed pension factor:
Furthermore, your pension factor should be as high as possible. This will vary depending on your current age, because it is calculated from the current mortality tables of the German Actuars Association and your age naturally plays a decisive role here.
Possible with or without a premium guarantee
Depending on the type of risk, a unit-linked pension insurance can also receive a contribution guarantee. For example, if your tariff includes a 100% contribution guarantee, this means that at least the contributions you have made will be available to you later at the start of retirement. But be careful: What sounds good at first has its pitfalls, because guarantees of this type always cost money. Translated, this means that the higher your premium guarantee, the less return your contract can generate, as the insurer has to invest a large part of your premiums very securely (current discount rate 2020: 0.9%). Therefore, in our opinion, this is not recommended. But the important thing is that you know that this option exists.
In summary, a unit-linked pension insurance is an optimal addition to statutory pension insurance .
Pension factor – simply explained!
Smart precautions – even in a crash | Cost-average effect