# Is the Allianz PrivatRente InvestFlex Green worth it?

## Introduction to contract review.

Can I rely on the **Allianz PrivatRente InvestFlex Green**?

A customer approached us with this exact question and presented us with their specific contract proposal for review.

If you are currently considering this question, this blog article will help you orient yourself and better understand. However, please note that individual parameters may lead to different outcomes in your specific offer or contract evaluation.

We do not aim to criticize the insurer or the reviewed tariff in a blanket manner with this blog article but rather strive to objectively and objectively examine only the offer presented to us in its individual composition.

If you also wish for a specific review of your offer or existing contract, you can contact us free of charge and without obligation.

## More information: How does a contract review process work?

Before we examine the details of the Allianz PrivatRente InvestFlex Green offer, it is important to mention some fundamental points that distinguish a good retirement plan.

Ensure that your retirement plan has a high, realistically expected return for the future.

Please consider that all costs will reduce your return and should therefore be kept as low as possible.

Additional factors that can reduce returns: Depending on the investment, you must consider a range of other negative factors that can lower your returns. It is important to be aware of these factors and incorporate them from the beginning.

Utilize the legal opportunities for tax reduction to achieve a high compound interest effect.

Do not underestimate the negative effects of inflation – protect your capital.

If you specifically take into account these points mentioned, there is a high chance that your invested capital will actually increase in the end.

## Contract verification master data.

We have received an offer with a monthly contribution of 300 euros and no initial investment. The assumed contribution duration is 34 years, covering the entire contract period. There is no desire for a dynamic contribution adjustment. The age of the policyholder at the start of the contract is 33 years, with retirement planned at 67 years old. With consistent contribution payments throughout the contract period, a total of 118,800.00 euros will be invested. Additional payments during the contract period and changes to contributions are not taken into account.

To determine if a contract is truly beneficial for you, it is necessary to first calculate the realistic average return (before costs and taxes) for the future.

The development of individual securities such as stocks or funds is unpredictable. To provide a professional evaluation of an investment, it is important to delve deeper. This entails first examining the sources of returns that the investment relies on, specifically the asset classes in which it is invested.

If we come across an investment with a 100% stock ownership, we will use the long-term expected stock market return of an average of 9% per year.

There are numerous scientific research papers on these “market returns” in various asset classes, which we refer to. Relevant literature references can be found at the end of this article.

Starting from the market return, which is the long-term development that can also be assumed for the future, the different types of costs (such as contract costs and fund costs of the respective used fund) and the other factors that reduce return are deducted in order to determine a realistically expected customer return.

The Allianz PrivatRente InvestFlex Green invests 100% of the contributions in the Allianz Global Sustainability A fund. This fund is an equity fund with an equity share of almost 100%. We therefore calculate with a return of 9% per year for the global stock market – before costs and taxes (market return). From this, we deduct the various factors that reduce returns to determine a realistic average customer return.

If you want to learn more about the basics of a financial math exam, you can find a link to a separate blog article below this post that exclusively covers this topic.

## Costs are stated in the contract.

In the next step, it is necessary for you to research the different types of costs that significantly reduce your return on investment. These include the costs of the insurer and the fund investment, which are directly deducted from the contract balance at different times. Although the other factors that reduce returns do not fall directly into the category of costs and are not paid from the contract balance, they should also be taken into consideration as they have an immediate impact on the return and therefore on your invested capital.

Summary of costs: – Cost of the alliance: 27,467.48 Euros – Cost of capital investment: 93,133.39 Euros.

This includes both fund expenses and other factors that reduce returns.

The different types of costs incurred by the insurer during the premium payment period can be seen in the graph. The following types of costs should be taken into account:

(Excerpt from the contract offer of Allianz PrivatRente InvestFlex Green, with researched costs added in red)

Alpha-Kosten are the closing and distribution costs that are typically deducted from the contract balance over the five-year (60-month repayment period).

These costs are paid out as commission to the intermediary, depending on the type of intermediary (insurance broker, insurance agent, etc.), up to 100 percent. The calculation is based on multiplying the annual premium by the years of premium payment duration and adding any initial payment (the so-called evaluation sum). For particularly long contract durations, the calculation of the evaluation sum is limited to a certain number of years, typically 30 to 50 years depending on the insurer.

Dynamic adjustments and contribution increases during the contract period increase the valuation sum. In such a case, when calculating the new valuation sum, it is assumed that the increased amount will be invested until the end of the contribution payment period.

The additional annual amount resulting from the contribution increase is multiplied by the future contribution years. Each time at the time of the increase, new acquisition and distribution costs are calculated.

Any additional payments during the contract period will also incur new closing and distribution costs – typically similar to a one-time payment.

If you choose to reduce or completely stop making contributions before the repayment period ends, you will not be charged any remaining closing and distribution costs. However, any costs that have already been charged will not be refunded. After the repayment period ends, there will be no further reductions as the closing and distribution costs have already been fully charged.

In our contract offer, the Allianz PrivatRente InvestFlex Green, we have determined a valuation amount of 118,800.00 euros and alpha costs of 2.5 percent.

The annual fee is 3,600 Euros for 33 years, which amounts to a total of 300 Euros per month.

The calculation is 118,800.00 Euro multiplied by 2.5 percent.

The total cost of Alpha is 2.970,00 Euro, which will be spread out over 60 months.

(Subject to future changes in contributions or co-payments)

The amount of Beta costs depends on the contributions and is deducted from the contract balance immediately after each contribution payment. This cost category is part of the administrative costs of an insurance contract. Many insurers differentiate between ongoing contributions, initial investments, and additional payments made during the contract term. Some insurers use a scale to calculate these costs, which often results in a reduction of Beta costs over the contract term.

Early contribution reduction or contribution exemption leads to adjustment of beta costs from the time of reduction. The disadvantage for you in this case is that if you are charged relatively high beta costs in the first few years due to the tier calculation, you will only partially or not benefit from the later reduction as a customer.

Some insurers involve their customers in surplus participation, which reduces beta costs.

Please note that the surpluses are reevaluated annually and are not guaranteed, so they could potentially be completely eliminated for the entire remaining duration of the contract as early as next year.

In our contract offer for Allianz PrivatRente InvestFlex Green, we have calculated beta costs amounting to 4.5 percent for each monthly contribution of 300 Euros.

The calculation for the contribution payment duration of 33 years at an interest rate of 4.5 percent for 300 Euro per month is 13.50 Euro per month for 12 months.

The total contract cost for Beta is 5,346 Euros over the entire duration.

Gamma-Kosten are calculated as as percentage of the total contract value at any given time. These costs make up the largest portion of expenses for long-term contracts. They are considered administrative costs of an insurance contract. Typically, these costs are calculated annually directly from the contract value. However, some providers may calculate and present Gamma-Kosten on monthly basis, so it’s important for individuals to verify the billing cycle being used.

Over the years, ongoing contributions, dynamic adjustments, additional payments, and interest create an increasingly higher calculation basis. The fixed percentage cost rate often leads to a significant increase of the cost size, which is calculated from the contract balance. Some insurers also apply different percentage gamma cost rates for different types of contributions, such as ongoing contributions or additional payments.

In our contract offer, the Allianz PrivatRente InvestFlex Green, we have calculated annual gamma costs of 0.60 percent on the total contract balance.

It is not possible to accurately quantify the Gamma costs before the contract is signed due to the unpredictable nature of its development. However, assuming a consistent contract development, an estimated cost amount for the entire contract duration can be determined. In the financial mathematical assessment of the Allianz PrivatRente InvestFlex Green, the total amount of insurer costs will be shown below. Subtracting the specifically calculable other types of insurer costs, our calculations reveal a remaining amount for the Gamma costs.

The total cost of the Gamma contract over the entire duration, assuming consistently unchanged surplus participation, is 19,151.48 Euros.

Kappa costs, also known as administrative costs or unit costs, are deducted directly from the contract balance. However, not all insurance companies calculate these costs. If they are applied, they represent a fixed annual amount, regardless of any specific contract details.

In our contract offer for Allianz PrivatRente InvestFlex Green, we were unable to determine the kappa costs.

Excerpt from the essential investor information of Allianz Global Sustainability A.

The costs of the capital investment, also known as the fund, can be found in the excerpt from the “Essential Investor Information”. The following types of costs should be distinguished:

Ausgabeaufschläge und Rücknahmeabschläge

These costs occur once for each deposit or withdrawal and often serve as compensation for a bank or investment advisor. They are sometimes deducted directly from the investment amount or must be paid separately. The calculation method can be misleading as it leads to different costs. Under certain conditions, these costs are occasionally discounted or waived completely. However, the ongoing costs of a fund are often higher in these cases, which can have a significantly negative impact over a longer period than the cost advantage of the discount on the front-end load. In most insurance-based retirement contracts, however, these types of costs are completely waived and therefore should not be taken into account.

The ongoing costs are deducted directly from the fund balance by the investment company. The amount of ongoing costs can be adjusted without your approval. You are not actively informed about this, but you can research on your own after the end of a fiscal year to find out the percentage of costs on your fund balance from the previous year. Similar to gamma costs, the calculation basis also increases over the duration of the contract term. The ongoing premium payment, dynamic adjustments, additional payments, and interest all contribute to an increasing calculation basis over the years. As a result, the percentage cost rate often leads to a significantly increasing cost size, which is calculated from the fund balance.

In the essential investor information of the Allianz Global Sustainability A, which is included in our contract offer for the Allianz PrivatRente InvestFlex Green, we find annual ongoing costs of 0.95 percent, after deducting fund-related surpluses, which are calculated on the total fund balance. Due to the unpredictable development of the fund, it is not possible to precisely quantify the ongoing fund costs for the future. In our financial mathematical examination, we therefore assumed a constant fund development and no possible changes in ongoing fund costs.

These factors are not directly charged to you as a customer. However, they must be considered because they have a direct impact on your returns and capital. The amount of these factors is influenced by the investment strategy, so we categorize them as part of the costs of capital investment for better understanding. Just like the ongoing costs explained above, these influencing factors need to be considered annually as a percentage and cannot be precisely calculated for the future. Hundreds of scientific studies confirm the existence of several factors that reduce returns.

In the research for our contract offer of Allianz PrivatRente InvestFlex Green and the selected investment strategy, we have taken into account the following factors that may reduce returns.

Opportunity costs due to potentially unfavorable investment decisions compared to the scientific, evidence-based investment strategy are estimated to result in an average annual return reduction of 0.50 percent.

The estimated transaction costs are an average of 1.00 percent per year, resulting in a decrease in return.

The chosen investment strategy is estimated to result in an average annual decrease in returns of 0.43 percent due to the cash lock-in trap.

For a detailed explanation of these and other negative factors, we have written a separate comprehensive blog article. You can find the link to it at the end of this article.

In the literature references, you will find a study that illustrates the differences between conventional asset management and evidence-based investing.

## The result of our examination of the Allianz PrivatRente InvestFlex Green.

We have created an assessment using our financial mathematical software, which clearly presents all factors throughout the entire contract term in Euros on the results page.

The costs and other factors that reduce the return on investment of a financial product directly affect the yield on your invested money. These are often difficult or partially not visible in the extensive offer and contract documents.

The total sum of the contributed payments over 33 years is calculated by multiplying 300 euros by 12 months and then by 33 years.

The total costs of the capital investment include fund expenses and other factors that may reduce returns.

The total costs of the alliance during the contract period will be deducted directly from the contract.

This is the representation of the total burden in euros over the 33-year contract duration.

Projected gross end capital payout after 33 years.

Projected net capital payout after 33 years.

Projected gross pension after 33 years of contribution.

Results page from the financial mathematical report.

The total deposit over the contract period is 118,800.00 Euro. The costs taken from the contract documents of Allianz amount to 27,467.48 Euro. The total costs of the capital investment, plus other negative factors, amount to 93,133.39 Euro.

The final capital is 259,088.93 Euros. Taxes are due on this final amount if fully paid out at the end of the contract. Based on our tax regulations, this results in a one-time tax liability of 16,877.16 Euros, leading to a net capital of 242,211.78 Euros.

You can also receive a lifelong pension from the Allianz PrivatRente InvestFlex Green. The monthly pension amount is based on the contract balance at the start of the pension, multiplied by the guaranteed pension factor, at a minimum. Many insurance companies have reduced the higher pension factors, which are generated by surpluses, in recent years. Therefore, we calculate with the guaranteed pension factor, which is 20.45 euros per 10,000 euros of contract balance at the planned retirement.

The monthly gross pension is calculated by multiplying 10,000 by 20.45 Euro guaranteed pension factor, resulting in 529.84 Euro.

## Our conclusion on the Allianz PrivatRente InvestFlex Green.

At first glance, the result of receiving a lifelong gross pension of over 529.84 euros from a monthly investment of 300 euros seems decent. The ratio of 118,800.00 euros paid-in to 242,211.78 euros net capital payout may also appear to be a good result at first glance…

However, the following should be considered.

If you choose to receive a monthly pension of 529.84 euros (before taxes) at the age of 67, instead of a lump sum payment of 259,088.93 euros (before taxes), you would have to receive the pension for 488 months, which is just over 40 years. Therefore, you would need to live to be at least 107 years old to truly benefit from the pension option.

Additionally, it should be noted that due the average inflation rate of approximately two percent per year, the purchasing power, or value, of the pension will be significantly reduced. Taking into account this inflation rate, the pension of 529.84 Euros will only have a “value” of 275.64 Euros in 33 years.

If you decide to opt for a one-time payout at the age of 67, you should also take into account that the purchasing power of the payout will be greatly reduced by inflation.