Unit-linked pension insurance

Unit-linked annuity policies are an alternative to traditional old-age provision and offer opportunities for better returns and a higher annuity in times of low interest rates. However, there are risks involved, which is why the selection of suitable funds should not be made without professional advice.

How does a unit-linked pension insurance work?

A private pension insurance based on funds serves to build up a lifelong, monthly pension . While traditional pension products may only invest a certain proportion of their contributions in high-yielding forms of investment such as equities, this does not apply to fund policies. Rather, more funds are invested in investment funds. If these develop very well, the insured benefits from the income and thus a higher pension in old age. However, it can also lead to losses in value. This in turn leads to a reduced pension. However, such loss of value can be compensated for long maturities usually.

In addition, insurers and insured persons can part with weak funds and instead invest the contributions and previously the capital saved into other investment funds. It is also often envisaged that capital will be redeployed into safe funds in recent years before retirement. Losses shortly before retirement are therefore hardly possible .

There is no standard product for unit-linked pension insurance. Rather, there are a large number of very different offers , which are not only distinguished by different risk variants. In addition, the contracts also vary in terms of costs and exact terms. Interested parties should therefore always clarify in advance in a personal consultation, which tariffs are actually suitable for their own provision.

What advantages does such a pension insurance offer

Unlike traditional annuity policies, fund policies are less affected by current low interest rates. After all, classic products have to invest in safe assets, such as government bonds, which barely bring interest rates and are even threatened by negative interest rates. However, fund pensions can generate very high returns with good performance. This increases the financial framework in old age.

In addition, there are fund pensions in various risk classes. This has the advantage that the old-age provision can be adjusted with the unit-linked pension insurance of the own investment strategy . If the focus is more on safety, it is possible to choose a smaller share. In a return-oriented approach, on the other hand, safe investments such as government bonds in favor of the return are dispensed with.

A fund pension also provides more flexibility at the beginning of retirement than other pension products . There is a choice between a lifelong pension and a lump sum. Anyone who does not know exactly how their own retirement should be designed in several decades can thus keep various options free.

Ultimately, unit-linked pension insurance is more adaptable to personal needs. Nevertheless, interested parties should not lose sight of the fact that value losses are possible with the fund pension. It is not advisable for every person to build their personal pension only on this form of pension insurance. Together with an old-age pension expert it is possible to check which is the best personal provisioning strategy.

Editorial Tip

With the private pension insurance you can select different investment funds for the structure of the pension. If you yourself are not well versed in this area, have an expert prepare your personal risk profile and select the most appropriate fund for you.

What happens in the event of death with the pension?

The unit-linked pension insurance pays a monthly pension, from the start of the agreed pension until the death of the policyholder. However, relatives receive financial support in certain cases even after the death of the insured person.

In the case of death before retirement, the surviving dependents will be paid the contributions paid and the income earned , provided that a premium refund has been agreed with the provider. However, such an option incurs costs which reduce the future pension in the event of survival. Therefore, interested parties should consider carefully whether the family members need the appropriate financial protection. Alternatively, a term life insurance can provide security.

If the insured dies after retirement, the pension payment normally ceases. However, many tariffs are now offered with a pension guarantee period . For example, this warranty period covers a period of ten years. If the death of the insured occurs within these ten years, the pension will continue to be paid to the beneficiary until the expiry date.

In addition, it is often possible to agree on a survivor’s pension . This can be used, for example, to secure the spouse. This then receives in the event of death until his own life, the agreed survivor’s pension. As with the premium refund, pension guarantee and survivor’s pension costs. When comparing different unit-linked annuities, it is therefore advisable to consider with an expert whether such additional protection really pays off.

Tax return and tax benefits

Although the contributions for the unit-linked pension insurance are generally not tax deductible, this variant offers attractive tax advantages . Under the condition that the insurance contract has a term of at least twelve years and does not end before the age of 63, only 50% of the income generated by the unit-linked pension insurance must be taxed at retirement age. Even with a one-time capital payment, only half of the income is taxable.

Unfortunately, tax benefits during the savings phase are not provided for the unit-linked pension insurance. Since 2005, there is the Rürup pension, which offers high tax benefits and is recommended for the self-employed and freelancers as well as high-earning workers.

For whom is the unit-linked pension insurance suitable?

The unit-linked pension insurance is particularly suitable for younger savers who want to build up a pension plan. They benefit the most from the yield-oriented tariffs and can usually compensate for the losses in value of investment funds. Among other things, there is the possibility to convert the investment into stronger funds. Such a change is tax-free and always an option.

People over the age of 40 should seek the help of an expert before taking out the insurance to avoid unnecessary risks. If a mutual fund in which the insurance primarily invests, develops poorly, otherwise it may no longer be possible to compensate for losses until the beginning of the pension.

In general, a comparison of the various offers on the market but advisable for all those interested . It also checks whether, for example, the Riester pension or Rürup pension are more likely to be recommended.

Editorial Tip

Attention: savers who do not have any financial reserves should not use the fund pension as their sole means of building up their retirement savings. It is better to save a nest egg first and if necessary to create the foundation for old-age provision with a classic old-age provision.

The unit-linked pension insurance in the test

When private pension insurance is tested, the classic variants are often in the foreground. This may also be due to the fact that a comparison of unit-linked annuity policies is not easy due to the sometimes very different risk assessments.

Focus-Money has divided tariffs into different guarantee classes in the unit-linked Pension Insurance Test 2016 for better comparability . Guarantee class B includes those offers that have a very high proportion of secure funds and a comparatively low level of risk. In the guarantee class E, in turn, are all those annuity policies that are fully on return and associated with a significantly higher risk.

Test winner guarantee class B:

  • Old Leipzig – ALfonds
  • AXA / DBV – Relaxation pension opportunity
  • Condor – Congenial privately guaranteed Compact
  • HDI – TwoTrust Varia private pension
  • Provinzial NordWest – GarantRente Vario
  • Stuttgart – flex pension performance-safe
  • WWK – Premium FundPension protect pro

Test winner guarantee class E:

  • Condor – Congenial private Compact
  • Continentale – FR3 fund pension LifeLine Invest
  • Europe – LiveInvest E-FR3
  • WWK – FRV Premium fund pension per

When should one cancel or change the fund policy?

When unit-linked insurances develop badly, insureds quickly think about a termination. However, a hasty termination of the contract is generally not recommended , because in addition to losses in value, there are also high administrative costs. In principle, insured persons are well advised to redistribute their savings portions to other funds in this case. For many insurance companies, such a change of funds is even possible once a year, even free of charge. A complete change of tariffs is usually worthwhile only if savers have only been paying for a few years in a unit-linked pension insurance with a weak fund selection.

If insured persons can no longer raise the contributions for the fund policy , the insurance contract can be made free of contributions . Then they pay no more contributions, but the capital saved so far continues to generate income. At the end of the contract period, the pension insurance can finally be used in the form of a single payment or a pension.

If a fund policy is terminated, the insurance only pays the so-called repurchase value. This is calculated from the value of the fund units less one – often not completely irrelevant – discount. A termination should always be the last step for the insured.