Providing for old age through private plans

Providing for old age through private plans

The rise in the sale of private savings plans in 2019 has been linked to people’s increasing realization that the meager pensions provided by the Greek state will not be enough to cover their needs. 

Tellingly, sales in Greece of traditional private savings plans with a guaranteed yield jumped 15 percent in 2019, according to the Hellenic Association of Insurance Companies, which, however, noted that these types of policies will be scrapped for good in 2020.

The imminent halt in the sales of these policies is due to increased uncertainty and low interest rates in the eurozone that do not allow insurance companies to guarantee their client satisfactory yields over a period of longer than 10 years.

In response, people are now increasingly resorting to private plans that can secure yields of 1.5 percent while a portion of their savings also goes toward other investment products such as unit linked insurance plans (ULIPs), whose returns rose by some 15 percent in 2019.

ULIPs differ from other private investment products, which provide guarantees for neither yield nor the initial capital invested, by offering a threshold. According to these plans, a sum of 1,000 euros, for instance, cannot fall below 950 euros.

This new generation of investment products that are already being promoted or planned by insurance companies have mechanisms that automatically change the investment strategy during the contract, from high-risk investments to low-risk investments as they approach maturity.

In this way they seek to limit the investment risk for the client as they approach retirement.

Traditional insurance products were distinguished from unit linked investment plans in that they guaranteed a specific yield when the contract ended. Moreover they were accessible to the average household, as they entailed small payments of about 100 euros per month over a period of 10, 15 or 20 years.

In this way one could secure a lump sum at the end or a pension.

The steep rise in traditional private insurance plans in 2019 was the result of efforts by certain companies which flooded the market with such programs – in the knowledge they would be scrapped this year.

Indeed, the majority of insurance companies have already withdrawn from the market of traditional insurance plans, given their imminent removal as an option in 2020. 

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