Why do the euro-denominated funds in PERs yield higher returns than those in life insurance policies?
According to a recent analysis conducted by the specialized website Good Value for Money, which focuses on personal insurance and financial investments, euro-denominated funds linked to retirement plans—particularly individual Retirement Savings Plans (PERs)—have outperformed euro-denominated funds in life insurance policies by +0.6% annually. Here’s why.
Good Value for Money recently released an analysis of 110 euro-denominated funds on the market. The results show that in 2022, life insurance policyholders earned an average net return of 1.92% on their euro-denominated funds after fees. The gross financial return on the assets comprising these traditional euro-denominated funds was 2.24%. In contrast, euro-denominated funds in retirement plans—including individual PERs—posted a gross financial return of 3.10%. Over the 2018–2022 period, these funds generated an average annual return that was 0.57% higher than that of traditional euro-denominated funds.
The disparity in performance observed over time can be explained by the distinct composition of these funds. Traditional euro-denominated life insurance funds consist primarily of high-quality bonds (76.5%) (average rating of bond portfolios: A+). In comparison, euro-denominated pension plan funds contain a lower proportion of bonds (69.5%) of slightly lower quality (average rating: A). It is important to note that higher credit ratings are associated with more modest financial returns. Furthermore, the euro-denominated funds in pension plans are more diversified, with a significantly higher proportion of real estate assets (8.3% versus 6.7%) and stocks (17.6% versus 9.2%).
The difference in fund composition stems from the specific regulatory framework governing retirement savings plans, such as the PER, where savings are locked in until retirement and withdrawal options are limited. This allows for a longer investment horizon, enabling greater risk-taking and broader asset diversification. Furthermore, 2022 saw the creation of numerous Supplementary Occupational Retirement Funds (FRPS), providing insurers with a regulatory framework tailored to the long investment horizons associated with retirement plans. FRPSs allow insurers to benefit from reduced solvency margins due to their long-term commitment to retirement.
In conclusion, this analysis highlights that it is preferable to invest in a euro-denominated fund through a Retirement Savings Plan (PER) rather than in a life insurance policy. In 2022, euro-denominated funds in retirement savings products posted an average annual return of 3.10%, compared to 2.24% for traditional euro-denominated funds in life insurance policies. Over the past five years, euro-denominated funds in retirement savings plans have outperformed traditional euro-denominated funds by 0.57% per year. This difference is primarily due to the more favorable regulatory framework for retirement savings plans, which allows for greater asset diversification.
