Pension Schemes

The label „pension scheme“ does not refer to the classic distinction between private, occupational and public pension schemes, but rather refers to a very distinct investment strategy. In this strategy, investors take up a loan and use the moneys from it to finance a life insurance and an annuity insurance. The amount of the loan is used in large part to finance the annuity insurance. What remains after deduction of costs is used for a cash value life insurance. The annuity insurance instantaneously commences to pay out monthly annuity payments. The investors use these proceeds to pay the interest on their financing loan. The loan itself is repaid at the end of maturity – by making use of the capital from the life insurance. 

The whole scheme is therefore only sustainable, if the payments received from the annuity insurance are higher than the interest on the loan. At the same time, the life insurance must generate proceeds which are sufficient to repay the loan completely. The profitability of these schemes therefore depends on many factors which are difficult to predict. In many cases these factors were not adequately explained to investors.

We examine for our clients whether the contracts are so closely connected to each other that the rescission of one of the contracts leads to a rescission of the other contracts. Thus the risk of an unfavourable performance of the insurances can possibly still be diverted to the financing bank.