Life annuities, the trap that many tablet retirees have fallen into

BarcelonaAdditional income for your retirement. That’s the promise behind annuities, a savings product that after a relative golden age has turned into a headache for many customers. Dozens of customers filed complaints claiming they were not properly informed.

Life annuities are life insurance policies that offer a consideration calculated according to the initial premium contributed by the customer. For example, if around 100,000 euros are contributed, the client can receive a payout equivalent to 6% per annum, i.e. 500 euros per month. However, it is classified as a complex product because it is an investment, mostly in fixed income, that involves risks.

Inflation penalty

The product grew strongly before the pandemic: in 2018, it accumulated €2,282 million in savings under management, according to data from Unespa, an employer in the insurance sector. But after the pandemic and the arrival of war in Ukraine, returns declined due to rising interest rates, and many clients found themselves with less money than they had invested.

“It is a product with great momentum and in which insurance companies compete. People reach retirement with little savings and it is a way to supplement pensions. You have peace of mind about the insured income and the possibility of saving the invested capital,” explains Managing Partner of the law firm Navas & Cusí, Juan Ignacio Navas. For ARA.

The truth is that, despite being a less volatile investment, fixed income investing – that is, bonds, bonds and other securities – is not without risk, which is not entirely easy to realize: If interest rates rise, fixed income provides higher returns, why increased Conflict about this product now?

The cash cow

“Let’s imagine that your fixed income is a cow that produces milk. You buy it for 100 euros and you know that after 10 years you will sell its meat for the same value: 100 euros. At the same time, every year, this cow” produces 5 liters of milk, and you sell them for 1 euro each. . After 10 years, you will have earned 50 euros. It is like an interest of 5%,” explains Master Professor of Financial Markets at Barcelona School of Management (UPF) Xavier Brun.

However, if bonds start paying better as interest rates rise, Brun says, it is as if after a while a different cow appears that is also worth 100 euros and you can sell it for 100 after 10 years, but with the only difference that it produces 6 liters. of milk per year, and that you sell each for one euro. “Now you can get a cow that produces more milk for the same price,” Brun adds. “If you now want to sell your previous cow, they won’t pay you 100 euros anymore, because for that value they will buy the new cow.”

This explains why many people with annuities find that they have less money in the fund. If they wanted to withdraw it now, when the market is offering higher-interest fixed-income investments, they would have to sell at a cheaper price. This is when losses happen. “After 10 years, I will only be able to sell the cow for 90 euros, because this less 10 euros is to compensate for the lower annual liter (which is sold in euros) compared to the new cow,” Brun concludes.

“The problem with all this is that they don’t explain it to you very well. If you want to withdraw the money before you die, that property has to be assessed at market value, and it may have depreciated. A lot of people have suddenly found that they have thousands of euros less,” explains lawyer Oscar Serrano. , from the Ronda Collection, for ARA.

Signature on tablet

In fact, this is the main problem behind the demands that the Ronda Group has put on the table. One of the people affected is Jaume’s father, 83, who had tens of thousands of euros in savings in his bank, and one day his manager suggested that this money should have some kind of return. “It seemed good to him to have a product with a fixed income, which did not have high volatility and in which he could get money whenever he wanted,” Jaume explains.

After a while, Jaume’s father asked for money, wanting to make a small withdrawal, and realized that the product he had promised was not what it was, and not only that, in the end there were thousands of euros less than what was initially invested. The same thing happened to his aunt.

After reviewing the documents, they submitted a claim to the bank alleging that an uneducated elderly person was forced to sign for a complex product and the bank’s response was that Jaume’s father gave his consent through a tablet.Same day of hiring. “The bank says they offered him to go home with the documents and a two-day deadline to make a decision, when the manager asked him to waive that deadline,” Jaume explains. In addition, the banking entity made him sign a suitability test half a year after launching the product.