Higher interest rates for pension savers
End of a years-long slump: interest rates for life insurance policies are likely to rise again across the board in 2024. However, consumer advocates would have liked more.
After years in the doldrums, pension savers can once again expect higher interest rates on life insurance policies across the board. "The trend is pointing upwards. Many providers are taking this step," says Lars Heermann from the rating agency Assekurata. The first insurers, including industry leader Allianz Leben, have already raised the current interest rate for the coming year. "The interest rate is back. All offers are benefiting from this," says board member Volker Priebe. However, consumer advocates see "room for improvement".
Insurance expert Heermann expects an increase in the current interest rate from the guaranteed interest rate and profit participation to an average of around 2.45% for classic private pension insurance policies - after 2.2% this year. "That is a clear signal after a rather hesitant upward trend this year," says the expert. For products with a reduced guarantee, the current interest rate could rise to 2.5 percent.
However, Lars Gatschke from the Federal Association of Consumer Organizations sees "still room for improvement. You now get more for call money than for profit participation." In his view, an important reason why things are not moving faster is the capital buffer - known as the additional interest reserve in technical jargon. Life insurers had to build up the buffer during the interest rate slump in order to secure the high promises of up to 4 percent for old contracts. This money could not be paid out to customers. "There would be more in the reduction of the additional interest reserve if it could be released more quickly. Customers could benefit from this in terms of profit participation," says Gatschke.
Lengthy process
Expert Herrmann sees the increase in the current interest rate as a rather lengthy process. "Insurers cannot completely turn around their long-term investments overnight." A large part of the insurance companies' money is in comparatively low-interest bonds with good ratings and long maturities from recent years. Their market value has fallen due to the sharp rise in interest rates.
This has created hidden liabilities on balance sheets. If insurers had to sell the securities before maturity, they would make losses. Heermann believes that the probability of large-scale loss-making sales is very low. However, the hidden burdens would force companies to be cautious.
The current interest rate is made up of the profit participation, the amount of which is decided by the insurers depending on the economic situation and the success of their investment strategy, and the maximum actuarial interest rate set by the Federal Ministry of Finance - also known as the guaranteed interest rate. The current interest rate only relates to the savings portion after deduction of acquisition and distribution costs, among other things. The final surplus is added at the end of the contract term.
Increase in the maximum actuarial interest rate recommended
The influential German Actuarial Association proposes increasing the maximum actuarial interest rate from the current 0.25 percent from 2025 for the first time in decades - to 1 percent. Any change will only apply to new life insurance policies. For old policies, some of which still yield 4 percent, nothing will change in this respect.
The maximum actuarial interest rate is intended to prevent companies from overreaching themselves with guarantee promises. They are allowed to offer less, but not more. However, since the interest rate slump, most life insurers have only been offering products with a reduced guarantee in new business.
Actuaries are actuaries who use methods of probability theory and statistics to evaluate financial uncertainties in insurance policies.
Read also:
- The trend of higher interest rates for life insurance policies is being welcomed by private pension savers, with Lars Heermann from Assekurata stating that many providers are increasing their interest rates.
- Consumer advocates, however, believe there is still room for improvement, with Lars Gatschke from the Federal Association of Consumer Organizations stating that buyers get more for call money than for profit participation.
- The increase in interest rates is being driven by the decision of the Federal Ministry of Finance to recommend an increase in the maximum actuarial interest rate from 0.25% to 1% for new life insurance policies, starting from 2025.
- This recommendation by the German Actuarial Association is meant to prevent life insurers from overreaching themselves with guarantee promises, allowing them to offer less but not more.
- Older policies, some of which still yield 4%, will not be affected by this change. Advisors will play a crucial role in helping pension savers navigate the changing landscape of interest rates and investment opportunities.
- Consumer centers can also provide valuable information and assistance to individuals seeking to optimize their pension provision, taking into account both the current interest rate decisions and the long-term interest rate policy of the Federal Ministry of Finance.
Source: www.ntv.de
