Pension insurance: What are the benefits of hybrid models?
That sounds tempting: Achieving returns while still securing your retirement. A fund-based pension insurance with a guarantee promises just that. But is it really worth it?
A portion of the contributions goes into fixed-interest investments, the rest is invested on the capital market: That's - in a nutshell - the essence of a hybrid pension insurance. It's supposed to combine the best of both worlds, classic and fund-based pension insurance - returns and security. But what seems almost too good to be true usually has a catch. Where it is located, among other things, has been investigated by the magazine "Finanztest" (Issue 12/2023).
Typically, the distribution of a hybrid pension insurance - even if the weighting can be freely chosen in principle - works as follows: 80 percent of the contributions for old-age provision are interest-bound, 20 percent are invested in funds. This allows the insurer to guarantee that 80 percent of the money paid in will be available at the start of retirement. How the remaining capital - after deducting costs - has fared in the funds depends on the development of the capital market and is therefore uncertain.
"Finanztest" editor Max Schmutzer sees hybrid pension insurances critically: "The products are too expensive, opaque, and unnecessary." On the one hand, the expected inflation must be taken into account if 100 euros paid in today will only be 80 euros in 30 years. Then these guaranteed 80 euros today are significantly less valuable. And as for the return: "In many market phases, no money ends up in the stock funds that I, as a customer, have chosen myself, so a high return is out of the question."
Guarantee component eats into the return
That not much is left at the end of the day is due to the guarantee component, which only promises low return prospects, and the costs that the insurer first deducts for itself, says the financial expert from Stiftung Warentest. In addition, the guarantees often only apply if policyholders stick to the agreed term - and they do so in practice only in about half of these contracts.
Constantin Papaspyratos, chief economist at the Bund der Versicherten, comes to a similar conclusion. He says: "I can't think of anyone for whom this type of insurance would be worthwhile. The only guarantee you get is ultimately a negative return."
The three main disadvantages, in his view, are: Firstly, the lack of flexibility - you commit yourself for the long term, even to a specific provider. Secondly, the limited fund selection, which has improved significantly at insurers in recent years compared to deposit providers, but is still far behind them. And thirdly, the high acquisition and distribution costs - which even those who leave before the end of the term have to pay in full.
Risk minimization works in other ways too
But what are the alternatives to meet the security needs of investors even in the event of price declines? The BdV chief economist advises investing not only in one stock, but spreading it widely across the market - across many currencies and sectors. "A large index fund with several thousand titles can largely limit the risk for security-oriented savers," says Papaspyratos.
Especially if the investment is intended as old-age provision, he recommends thinking long-term. "Don't let stock market crashes worry you. You won't find an equity index that has developed negatively over time periods of twenty years and more."
Retirement provision on your own
For more security, even Schmutzer believes that a pension insurance with a guarantee component is not necessary. Instead, one could build their own model. With a more favorable, fund-based pension insurance without a guarantee, bond ETFs and stock ETFs can be combined in such a way that the investment is very secure. Or one can put together such a savings plan entirely on one's own - without the insurer. At Stiftung Warentest, this is called the "slipper portfolio" because it is so simple and comfortable to manage.
The slipper portfolio also consists of a yield and a security component, which can be weighted more or less depending on one's risk preference - for example, one quarter to three quarters. Or half and half.
"The security component can be a savings account or an ETF with government bonds," says financial expert Schmutzer. "Thanks to rising interest rates, even the security components are yielding something." The other component invests in a world stock index ETF via a securities account.
Existing contracts not canceled rashly
But what if I already have a pension insurance with a guarantee? Cancel or continue? "That's difficult to answer in general," says Max Schmutzer. It depends, among other things, on how long you've been paying in and how large the losses would be. "Some insurers allow a switch to a fund-based pension insurance without a guarantee," he says. Apart from cancellation, it is also possible to let the contract run without contributions.
"Important: Don't act hastily, don't cancel immediately," warns Constantin Papaspyratos. Better: get advice first. For example, from the Bund der Versicherten or a certified financial advisor. The advisory services of the consumer centers also check insurance contracts for a fee and help insured persons with their decision.
"It may not be worth canceling and you can afford to continue paying in," says Papaspyratos. Then, at least, you can check if the old provider now offers new funds. In any case, insured persons should keep an eye on whether their pension insurance with a guarantee is linked to an additional insurance, as it will then be difficult to opt out.
The magazine "Finanztest" questioned the location of these guarantees in hybrid pension insurances, among other aspects. For those who value flexibility and a wider fund selection, alternative retirement provision models exist, such as building a customized portfolio with bond and stock ETFs.
