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AXA Fonds-PrivatRente - Tarif ALVF1

Is the AXA Fonds-PrivatRente - Tarif ALVF1 worth it?

Fabian Beining - Senior Investment Consultant

Introduction to contract review.

Can I rely on the AXA Fonds-PrivatRente – Tarif ALVF1?

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

If you are currently considering this question, this blog article can help you orient yourself and better understand the topic.

However, please note that individual parameters may lead to different outcomes for your specific offer or contract review. We do not intend to criticize the insurer or the reviewed tariff in a blanket manner with this blog article but rather strive to objectively and objectively examine the offer we have in its individual composition.

If you also desire a specific review of your offer or existing contract, please feel free to contact us without any obligations.

Further information: How does a contract review process work?

Before we examine the details of the AXA Fonds-PrivatRente – Tarif ALVF1 offer, it is important to mention some fundamental points that characterize a good retirement plan.

Ensure that your retirement plan has a high and realistic expected return for the future.

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

Additional factors that can reduce returns: Depending on the investment, you must consider a range of other negative factors that will decrease your returns. It is important that you are aware of these factors and factor them in from the beginning.

Take advantage of the legal options for tax reduction to benefit from a compounding interest effect.

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

If you pay particular attention to these listed points, you have a high chance that your invested capital will actually increase in the end.

Data of contract review.

Based on the offer we have, the monthly contribution is 400 euros without an initial investment. The assumed contribution duration is the entire contract term of 27 years. No dynamic contribution adjustment is desired. The insured person’s age at the start of the contract is 40 years, and retirement is planned at 67 years. With consistent contribution payments throughout the contract term, a total of 129,600.00 euros will be invested. Additional payments during the contract term and changes in 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 further. This means first examining the sources of returns that the investment relies on, or in other words, the asset classes that a financial investment is invested in.

If we come across an investment with a 100% stock share, we will use the long-term expected return of the stock market, which averages nine percent per year.

There are numerous scientific research studies available on these “market returns” in various asset classes, which we can 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 expected for the future, the various types of costs (such as contract costs and fund costs of the respective fund used) and other factors that reduce returns are then deducted in order to determine a realistically expected customer return.

The AXA Fonds-PrivatRente – Tarif ALVF1 invests 100% of its contributions in the AXA Rosenberg Global Equity Alpha Fund, which is an equity fund with almost 100% equity exposure. We assume a market return of 9% per year for the global equity market before costs and taxes. From this, we subtract various factors that reduce returns to determine a realistic average customer return.

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

Costs of the contract AXA Fonds-PrivatRente – Tarif ALVF1

In the next step, it is necessary to research the different types of costs that significantly reduce your return on investment. These include costs from the insurer and fund management, which are deducted directly 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 must also be taken into account as they have a direct impact on the return and on your invested capital.

AXA Fonds-PrivatRente - Tarif ALVF1 costs

Summary of costs: The costs of AXA amount to 27,318.28 euros and the costs of capital investment amount to 58,955.85 euros.

This includes both the fund costs and other factors that decrease returns.

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

(Excerpt from the contract offer of AXA Fonds-PrivatRente – Tariff ALVF1, in which we have added the researched costs in red)

Alpha-Kosten is the costs for closing and distributing the contract. These costs are usually deducted from the contract’s account balance over the five-year (60-month repayment period). Depending on the type of intermediary (insurance broker, insurance agent, etc.), these costs can be paid out as a commission to the intermediary, up to 100 percent. To calculate the costs, the annual premium is multiplied by the number of years of premium payment, and an initial payment (called the valuation sum) may be added. For contracts with particularly long terms, the calculation of the valuation sum is limited to a certain number of years, typically 30 to 50 years, depending on the insurer.

Dynamic adjustments, such as automatic five percent per year, and contribution increases during the contract term, 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 contribution years in the future. Each time at the time of the increase, new initial 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 reduce or completely suspend your contributions before the repayment period, you will not be charged any outstanding closing and distribution costs. However, any costs that have already been calculated will not be refunded. After the repayment period, no further reduction will occur as you have already been fully charged for the closing and distribution costs.

In our contract offer of AXA Fonds-PrivatRente – Tarif ALVF1, we have calculated an assessment amount of 129,600.00 euros and alpha costs of 2.5 percent.

The yearly contribution of 400 Euros for a duration of 27 years results in a total of 4,800 Euros.

The calculation is 129,600.00 Euro multiplied by 2.5 percent.

The total cost of 3,240.00 Euros for Alpha is divided over 60 months, without taking into account any future changes in contributions or additional payments.

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

Early contribution reduction or contribution exemption will result in the 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 the surplus participation, which reduces the beta costs.

Attention: The surpluses are determined annually and are not guaranteed. Therefore, they could also be completely eliminated for the entire remaining term of the contract as early as next year.

In our contract offer for AXA Fonds-PrivatRente – Tarif ALVF1, we have calculated beta costs of 9 percent for each monthly contribution of 400 euros.

The calculation is as follows: 400 Euro multiplied by 9 percent equals 36 Euro multiplied by 12 months multiplied by 27 years of contribution duration.

The total cost over the entire contract period is €11,664.00.

(Excluding future changes or additional payments)

Gamma costs are percentage-based cost that is typically calculated on the total contract value at any given time. These costs make up the largest portion of expenses for most long-term contracts. They are considered part of the administrative costs of an insurance contract. Typically, these costs are calculated annually directly from the contract value. However, some providers may also show gamma costs on a monthly basis, so it is important to carefully review the billing frequency used.

Ongoing contributions, dynamic adjustments, additional payments, and interest accumulation over the years create an increasingly higher basis for calculations. 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 payments or additional payments.

In our contract offer for AXA Fonds-PrivatRente – Tarif ALVF1, we have determined annual gamma costs of 0.47 percent on the total contract balance.

It is not possible to accurately determine the Gamma costs before the contract is finalized due to unpredictable contract development. However, assuming a consistent contract development, an estimated cost amount for the entire contract term can be calculated. In the presented financial mathematical evaluation of the AXA Fonds-PrivatRente – Tarif ALVF1, we will see the total amount of insurer costs. Subtracting the specifically calculable other types of insurer costs, our calculations result in a remaining amount for the Gamma costs.

The total cost of Gamma over the entire contract duration, assuming a consistently unchanged surplus participation, is 12,414.28 Euros.

Kappa-Kosten are administration costs also known as Stückkosten. These costs are deducted directly from the contract balance. However, not all insurers charge this type of cost. If they are charged, it is a fixed annual amount, regardless of any individual contract details.

In our contract offer of the AXA Fonds-PrivatRente – Tarif ALVF1, we were unable to determine any Kappa costs.

This is an excerpt from the essential investor information of the AXA Rosenberg Global Equity Alpha Fund.

The costs of the capital investment, specifically the fund, can be found in the excerpt from the “Key Investor Information Document”. The following types of costs are distinguished:

The sentence above is already written in a neutral tone of voice.

These costs occur once for each deposit or withdrawal and often represent 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. Occasionally, under certain conditions, these costs are discounted or waived completely.

However, often the ongoing costs of a fund are higher, which can have a significantly more negative impact on a longer-term investment than the cost advantage from the discount on the front-end load. However, most insurance-based retirement contracts completely waive these types of costs and therefore should not be considered.

The ongoing costs are deducted directly from the fund balance by the investment company. The amount of ongoing costs can be adjusted without your consent. You are not actively informed about this, but you can research on your own after the end of a financial year to find out how high the percentage costs were on your fund balance in the previous year.

Just like the gamma costs, the calculation basis also increases over the duration of the contract term. The ongoing contributions, dynamic adjustments, additional payments, and interest, therefore, form an increasingly higher calculation basis over the years. The percentage cost rate often results in a significantly increasing cost size, which is calculated from the fund balance.

In the essential investor information of the AXA Rosenberg Global Equity Alpha Fund, which is included in our AXA Fonds-PrivatRente – Tarif ALVF1 contract offer, we find annual ongoing costs of 0.80 percent, calculated on the total fund balance after deducting fund surpluses. Due to the unpredictable performance of the fund, it is not possible to accurately quantify the ongoing fund costs for the future. Therefore, in our financial mathematical examination, we assumed a constant fund performance 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 return and therefore your capital. The amount of these factors is influenced by the investment strategy, so we classify them as part of the costs of capital investment for better understanding. Like the ongoing costs explained above, these influencing factors must be considered annually as a percentage and cannot be precisely calculated for the future. Hundreds of scientific studies confirm the existence of a number of factors that reduce returns.

In the research of our contract offer for the AXA Fonds-PrivatRente – Tarif ALVF1 and the selected investment strategy, we have taken into account the following factors that could reduce the return.

The estimated opportunity cost of potentially unfavorable investment decisions, compared to the scientific, evidence-based investment strategy, is an average annual reduction of 0.70 percent in returns.

Transaction costs are estimated to average a reduction in return of 0.50 percent per year.

The chosen investment strategy is estimated to result in an average annual decrease in returns of 0.21 percent.

For a detailed explanation of these and other negative influencing factors, we have written a separate extensive 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 highlights the differences between conventional asset management and evidence-based investing.

The result of our examination for the AXA Fonds-PrivatRente – Tarif ALVF1.

We have created a report with our financial mathematical software that presents all factors over the entire contract period in euros on the results page in a clear and understandable manner.

The costs and other factors that can reduce the return on your investment directly impact the yield on your invested money. These are often difficult or partially not apparent in the extensive offering and contract documents.

AXA Fonds-PrivatRente - Tarif ALVF1

The total sum of the contributions paid over 27 contract years is calculated by multiplying 400 Euros by 12 months and then by 27 years.

The total costs of the capital investment include fund fees and other factors that decrease returns.

The total costs of AXA during the contract period, which are directly deducted from the contract.

This is the representation of the total cost in euros over the 27-year contract duration.

Projected gross final capital payout after 27 years.

Projected net capital payout after 27 years.

Projected gross pension after 27 years of contribution.

(Result page from the financial mathematical report)

The total deposit over the contract term is 129,600.00 Euro. The costs taken from the contract documents of AXA amount to 27,318.28 Euro. The total costs of the capital investment, plus other negative factors, amount to 58,955.85 Euro.

The final capital amount is 259,220.04 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 burden of 15,593.66 euros, resulting in a net capital of 243,626.38 euros.

You can also receive a lifetime pension from the AXA Fonds-PrivatRente – Tarif ALVF1. The monthly pension amount is determined by the contract balance at the start of the pension, multiplied by the guaranteed pension factor, at a minimum. In recent years, many insurers have repeatedly reduced the higher pension factors resulting from surpluses. Therefore, we calculate with the guaranteed pension factor, which is 23.48 euros per 10,000 euros contract balance at the planned retirement age.

The monthly gross pension is calculated as 259,220.04 Euros divided by 10,000, multiplied by 23.48 Euros, resulting in 608.65 Euros.

Our conclusion on the AXA Fonds-PrivatRente – Tarif ALVF1.

At first glance, the result of receiving a lifelong gross pension of over 608.65 euros from a monthly investment of 400 euros seems reasonable. Additionally, the ratio of the 129,600.00 euros paid in compared to the 243,626.38 euros net capital payout may also appear to be a good result.

However, the following factors need to be taken into consideration.

If you choose to receive a monthly pension of 608.65 euros (before taxes) at the age of 67, instead of a lump sum payment of 259,220.04 euros (before taxes), you would have to receive the pension for 425 months, which is just over 35 years. Therefore, you would have to live to be at least 102 years old to actually benefit from the pension option.

Additionally, it should be noted that due to the average inflation rate of approximately two percent per year, the purchasing power, or value, of the pension is significantly reduced. Taking into account this inflation rate, the pension of 608.65 euros will only have a “value” of 356.58 euros in 27 years.