The German Institute of Pension Actuaries (IVS), and its branch, the Association of Actuaries (DAV), have criticised a study on the lifelong benefits of a fund-based pension (Fondsrente) conducted by the fund industry association BVI.

According to the actuaries, BVI clearly underestimated the risk of a “premature capital consumption” in its study published last month, which concluded that a fund payout plan, a so-called fund-based pension, offers significantly higher returns and more flexibility than a guaranteed life annuity, and is “only slightly riskier”.

BVI’s study also showed that in 95.7% of the cases money lasts until the end of life, underscoring the benefits of such option compared with a life annuity.

­“The risk of using up capital too soon does exist, and is not disputed by BVI. In the study, in 4% of the cases the capital was used up while the person was still alive,” said  Maximilian Happacher, DAV’s chair.

He added: “This actual risk is underestimated by BVI, and this is essentially due to the assumptions made.”

The Fondsrente is a one-off investment of savings in an open-ended investment fund upon retirement, to earn regular, additional pension via a payout plan, according to BVI.

For its study, BVI took as an example CHF35,200, corresponding to the average assets of German private households for people aged 65-74 in 2021, with a one-off investment in a mixed fund allocating 70% of assets in government bonds and 30% in equities, combining historical performances of the German government bond index (REX) and equities index (DAX), to simulate possible market developments for each investor in each year of life.

The mixed fund returned annually on average 4.4% since 1987, BVI said in its study. Actuaries doubt that assumptions for bond yields looking back to the period of unprecedented low interest rates, that only ended in 2022, can also be valid for the future.

Moreover, life expectancy is underestimated in BVI’s study by around two years because of mortality conditions from 2020 to 2022, which were heavily influenced by the pandemic.

“This assumption is more than risky. We are seeing mortality rates approaching pre-COVID levels again, and we believe it is necessary to assume a further increase in life expectancy,” said Happacher.

BVI also assumes that pension payouts increase by 2% annually to compensate for expected inflation.

The criticism of BVI’s report comes as the government plans to launch in 2026 a retirement savings account (Altersvorsorgedepot), supported by public subsidies but without guarantees, to reform the third pillar pension system.

The German government is working on a list of potential investments linked to savings accounts, including for example ETFs or bonds, but not crypto assets, finance minister Christian Lindner said.

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