Continentale’s online tool promotes fund policies

A fund payout plan offers significantly higher returns and more flexibility than a guaranteed life annuity, and is only slightly riskier. This is the conclusion of a recent study by the BVI. The risk of a fund pension being used up prematurely is low: According to the BVI analysis, in around 96 out of 100 cases the money lasts until the end of life. “Even if the capital is used up prematurely, the fund pension covers the majority of retirement: in only around one percent of cases is the capital for a private supplementary pension used up five or more years too early,” says the German Fund Association.

The BVI is pushing for fund plans to be part of the currently planned pension reform. Two associations representing insurance providers and brokers disagree and strongly criticize the BVI study.

Life expectancy too pessimistic, return forecast too optimistic

“The BVI's calculation that in 96 percent of cases the money will last until the age of 85 is misleading,” explains Michael H. Heinz, President of the Federal Association of German Insurance Agents (BVK). “In fact, two thirds of women and more than half of men can expect to live well beyond this age,” he says.

In addition, the forecasts for the returns on German government bonds and stocks are too optimistic, Heinz continued. A payout plan is not enough to safely close the gaps in the statutory pension insurance and guarantee the usual standard of living, explains the BVK President.

Norbert Rollinger, President of the German Insurance Association (GDV) and CEO of R+V Versicherung, sees things similarly. He also criticizes the BVI's assumptions on life expectancy and capital market developments and describes the study as a “sham by fund providers.”

In cooperation with IVFP

Now, Continentale, a fund policy provider, has also spoken out. The company has developed an online tool together with the Institute for Pension and Financial Planning (IVFP) to help brokers compare returns and serve as an argumentation aid for fund policies.

The calculation is based on two of the company's fund policies: Continentale Easy Rente Invest and Continentale Rente Invest 3rd tier fund pensions. In addition to the tariff information, the tool also takes into account the customer's tax situation, the forecast return, the number of fund changes and a number of other factors that influence the expected maturity performance. These include information on flexibility or the quality and type of the selected funds. “The fund investment optimizer can be used to simulate the impact of up to 20 fund changes,” explains Continentale.

Tax advantages

“The fund investment optimizer shows that unit-linked pension insurance is often profitable – especially in a long savings phase,” says Thomas Pollmer, Head of Life Product Management at Continentale Versicherung. This is mainly due to the tax advantages of fund policies: no taxes in the savings phase, favorable taxation when pensions are paid or capital is paid out.

If the pension is paid out as a lifelong pension, the customer only has to pay tax on part of the pension payments (taxation of the income share), explains Pollmer. In addition, the income is not taxed annually, but only when it is paid out or sold. And if a fund police has been in place for at least twelve years and the payment is made after the age of 62, half of the income remains tax-free.

According to Pollmer, anyone who changes funds in their portfolio would also be better off with a fund policy. This is because the fund change would be tax-free and would take place without an issue surcharge. With direct investments, however, the full capital gains tax including the solidarity surcharge of 26.38 percent would be due each time.