## Introduction to contract review.

Can I rely on the INTER MeinLeben Privatrente?

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

If you are currently considering this question, this blog article will help guide and improve your understanding. However, please note that individual parameters may result in a different outcome for your specific offer or contract review.

We do not intend to criticize the insurer or the tested tariff in a blanket manner with this blog article but rather aim to objectively and objectively examine the offer we have in its individual composition.

If you would like a specific review of your offer or existing contract, please feel free to contact us without any obligation.

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

Before we examine the details of the INTER MeinLeben privatrente offer, it is important to mention some basic points that characterize a good retirement provision.

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

Consider that all costs reduce your return and therefore should be kept as small as possible.

In Bezug auf verschiedene Anlageformen müssen zusätzliche negative Faktoren berücksichtigt werden, die sich auf die Rendite auswirken können. Es ist ratsam, diese Faktoren zu kennen und von Anfang an einzubeziehen.

Take advantage of the legal possibilities for reducing taxes to achieve a high compound interest effect.

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

If you specifically consider these listed points, there is a high chance that your invested capital will actually increase in the end.

## Contract review master data.

Based on the offer we have before us, the monthly contribution is 300 Euros without an initial investment amount. The assumed contribution duration is 33 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 34 years, with retirement planned at 67 years. With consistent contribution payment throughout the contract period, a total of 118,800.00 Euros will be invested. Additional payments during the contract period and changes in contributions are not considered.

To determine if a contract is truly worth it 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 assessment of an investment, it is important to delve deeper. This means initially examining the sources of returns that the investment relies on, or in other words, the asset classes in which the investment is allocated.

If we come across a facility with a hundred percent stock ownership, we use the long-term expected return of the stock market, which averages at nine percent 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 also assumed 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 subtracted in order to determine a realistically expected customer return.

The INTER MeinLeben Privatrente documents show that 100% of the contributions go into the DWS Deutschland fund. This fund is an equity fund with an equity share of almost 100%. We therefore calculate with a world stock market return of 9% per year – before costs and taxes (market return). From this, the various factors that reduce returns need to be deducted to determine a realistic average customer return.

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

## Costs are outlined in the contract.

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

Summary of costs: The costs of INTER are 28,036.77 Euros and the costs of the capital investment are 97,957.03 Euros.

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

The different cost types of the insurer during the premium payment period can be seen from the graphic. The following cost types should be considered:

(Extract from the contract offer of INTER MeinLeben Privatrente, in which we have added the researched costs in red.)

Alpha costs are the commission fees that are deducted from the contract balance over the course of five years (60 months of repayment). These fees are paid out to the broker as a commission, which can be up to 100 percent depending on the type of intermediary (insurance broker, insurance agent, etc.). The calculation is based on multiplying the annual premium by the number of years of premium payment, and adding any initial payment (known as the valuation sum). For longer contract 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 increases of five percent per year, and contribution increases during the contract term, increase the valuation sum. In this case, when calculating the new valuation sum, it is assumed that the increase 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 the increase occurs, new closing and distribution costs are calculated.

During the duration of the contract, any additional payments also incur new closing and distribution costs – typically, just like a one-time payment.

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

In our INTER MeinLeben Privatrente contract offer, we have determined an assessment amount of €118,800.00 and alpha costs of 7.5 percent.

The annual contribution of 300 euros for 12 months multiplied by the duration of 33 years equals a total contribution of 3,600 euros.

The calculation is 118,800.00 Euros multiplied by 7.5 percent.

The total cost of €8,910 is spread over 60 months.

(Not considering future changes or additional payments)

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

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

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

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

In our contract offer for the INTER MeinLeben privatrente , we have determined beta costs of 5 percent for each monthly contribution of 300 euros.

The calculation is as follows: 300 Euro multiplied by 5 percent equals 15 Euro. Then, 15 Euro multiplied by 12 months multiplied by 33 years of contribution duration.

The total cost of the contract over its entire duration is 5,940.00 Euros.

Gamma costs are calculated as percentage costs based on the total contract balance at any given time. These costs typically make up the largest portion of expenses for insurance contracts with long durations. They are considered part of the administrative costs of an insurance contract. Gamma costs are usually calculated annually, directly from the contract balance. However, some providers may also provide monthly breakdowns of these costs, so it is important for individuals or organizations involved with such contracts, should carefully review the billing frequency being used.

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

In our contract offer for INTER MeinLeben Privatrente, we have determined annual gamma costs of 0.41 percent on the total contract balance.

It is not possible to accurately determine the Gamma costs before the contract is signed due to the unpredictable contract development. However, assuming a consistent contract development, an estimated cost amount for the entire contract period can be calculated. In the financial mathematical expert report on the INTER MeinLeben privatrente, we will see the total amount of insurer costs below. According to our calculations, subtracting the specifically calculable other types of insurer costs, there is a remaining amount for the Gamma costs.

The total cost of the Gamma-Kosten over the entire contract period, assuming a constant surplus participation, is 12,394.77 euros.

Kappa costs, also known as administrative costs or unit costs, are deducted directly from the contract balance. However, not all insurers charge this type of cost. If they do apply, it is a fixed annual amount, regardless of any individual contract details.

In our INTER MeinLeben Privatrente contract offer, we have calculated annual Kappa costs amounting to €24.00 after surpluses.

The total cost of the Kappa contract over the entire duration is 792.00 Euro, calculated as 24 Euro multiplied by 33 years.

(Excerpt from the key investor information of DWS Germany)

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 should be distinguished:

There are fees for purchasing and selling investments.

These costs are incurred once for each deposit or withdrawal and often serve as compensation for banking or investment advisors. They may be deducted directly from the investment amount or paid separately by you.

The calculation method can be misleading, as it can result in different costs. Under certain conditions, these costs are occasionally discounted or waived entirely. However, in many cases, the ongoing costs of the fund are higher, which can have significantly more negative effects on the long-term performance than the cost advantage gained from the discount on the sales charge. In most insurance-based retirement contracts, these types of costs are completely waived and therefore should not be considered.

The ongoing costs are taken 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 only research on your own initiative after the end of a fiscal year to find out how high the percentage costs were on your fund balance last year. Just like the gamma costs, the calculation basis also increases over the duration of the contract term.

The ongoing premium payment, dynamic adjustments, additional payments, and interest form an increasingly higher calculation basis over the years. Therefore, the percentage cost rate often results in a significantly increasing cost size, which is calculated from the fund balance.

The essential investor information of DWS Deutschland, which is included in our contract offer for INTER MeinLeben Privatrente, states that there are annual ongoing costs of 1.26 percent, after deducting 0.14 percent of fund surpluses, which are calculated on the total fund balance. Due to the unpredictable fund development, it is not possible to accurately quantify the ongoing fund costs for the future. In our financial mathematical examination, we have therefore assumed a constant fund development and no possible changes to the ongoing fund costs.

These factors are not directly fees charged to customers. However, they must be considered because they have a direct impact on your return 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. 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 that there are several factors that reduce returns.

In researching our contract offer for the INTER MeinLeben privatrente and the selected investment strategy, we have taken into account the following factors that may reduce returns.

Opportunity costs, potentially resulting from unfavorable investment decisions compared to the scientific, evidence-based investment strategy, are estimated to cause an average reduction in returns of 0.50 percent per year.

The estimated average transaction costs are 1.00 percent per year, resulting in a reduction in returns.

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

For a detailed explanation of these and other negative influencing 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 highlights the differences between conventional asset management and evidence-based investing.

## The result of our examination of the INTER MeinLeben Privatrente.

We have created an expert report with our financial mathematical software, which presents all factors in euros comprehensively on the results page for the entire contract term.

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

The total amount of contributions paid over 37 years of contract (300 euros x 12 months x 33 years).

The total cost of the capital investment includes the fund expenses and other factors that reduce returns.

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

This represents the total burden in euros over the 33-year contract period.

Projected gross final capital payout after 33 years.

Projected net capital payout after 33 years.

Projected gross pension after 33 years of contribution.

The results page from the financial mathematical report.

The total deposit over the contract period is 118,800.00 euros. The costs taken from the contract documents of INTER amount to a total of 28,036.77 euros. The total costs of the capital investment plus other negative influencing factors amount to 97,957.03 euros.

The final capital is 240,181.45 Euro. 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 14,602.53 Euro, resulting in a net capital of 225,578.92 Euro.

You can also receive a lifelong pension from the INTER MeinLeben Privatrente. The monthly pension amount depends on the contract balance at the start of the pension, at least multiplied by the guaranteed pension factor. Many insurers have repeatedly reduced the higher pension factors that arise from surplus in recent years. Therefore, we calculate with the guaranteed pension factor, which is 25.66 euros per 10,000 euros contract balance at the planned retirement age.

The monthly gross pension amount is calculated by multiplying 240,181.45 Euros by 25.66 Euros, resulting in a guaranteed pension factor of 616.31 Euros.

## Our conclusion on the INTER MeinLeben Privatrente.

At first glance, the result of receiving a lifelong gross pension of over 616.31 euros from a monthly investment of 300 euros seems quite reasonable. Additionally, the ratio of 118,800.00 euros paid to a net capital payout of 225,578.92 euros may also appear to be a good result.

However, the following should be taken into consideration:

If you choose to receive a monthly pension of 616.31 euros (before taxes) at the age of 67, instead of a lump sum payment of 240,181.45 euros (before taxes), you would need to receive the pension for 389 months, which is slightly more than 32 years. Therefore, you would need to live to at least 99 years old in order 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 616.31 euros will only have a “value” of 320.62 euros in 33 years.

If you choose to receive a lump sum payment at the age of 67, you must also consider that the purchasing power of the payment will be greatly reduced due to inflation.