If endowment customers choose an annuity when they retire, the annuity factor will determine the amount of their monthly payment. The current average market value fell more than 10 percent year on year at the same time as the discount rate, which has been the lowest since January.
How are the pension factors of German life insurers evolving? Jürgen Thomsen, product analyst for the provision of old-age services at Franke and Bornberg, shows this in a blog post from the Hannover-based analysis company. Using the internal consulting tool FB Xpert, his team compared the key figures for 2022 with those of the previous year. The testers replaced the currently unavailable fares with the corresponding successor product. “The result of the analysis is not really surprising, but the scope is,” says Thomsen.
First, the current pension factor was tested. It is determined using the respective calculation bases when the contract is entered into. These include interest and costs, as well as the probability of mortality or life expectancy. “In insurance offers, the current pension factor provides the basis for extrapolating the future pension, but it is not guaranteed,” Thomsen restricts. “In addition, there is often a lack of transparency. Not all companies provide information on the current pension factor.
Compared to the corresponding values for 2021, this current pension factor fell for almost all life insurers, Franke and Bornberg report: last year it was still an average of EUR 29.09. This year, however, they are only 25.97 euros. This decrease of 3.12 euros corresponds to a loss of more than 10.7 percent. This means: With an initial capital of 100,000 euros, each month 31.20 euros are missing from the guaranteed pension. “However, not all companies offer value,” recalls Thomsen.
Only one strongly guaranteed pension factor
Second, Franke and Bornberg considered the guaranteed pension factor, for which the calculation bases at the beginning of the contract are also applied. However, German life insurers generally deduct a security discount from this. In this way, companies wanted to ensure that they could deliver on their performance promises in all cases. In this way, companies can prevent possible damage to their reputations among critical consumers if they have to reduce their pension factors.
Such a reduction in the so-called strongly guaranteed pension factor is excluded. Because here the insurer refrains from applying paragraph 163 of the Insurance Contract Law (VVG). This rule allows you to adjust your gross insurance premiums under specific conditions. “Currently, only the Alte Leipziger offers a strongly guaranteed pension factor,” reports analyst Thomsen from the results of his study, for which he took into account key figures from 55 rates from 25 companies.
However, Thomsen warns that customers should not overestimate providers’ guarantees when choosing a personalized rate. Because: “High guarantees offer security, but on the other hand they limit the investment opportunities of companies. The more collateral they promise, the smaller your scope for profitable investments. The insurer with the higher annuity factor has to commit more capital to low-yielding investments to support guarantees.” Providers with a lower annuity factor could invest more in high-potential investments.