Insights •Insurance• 03.10.2017 • Presented by AXA Luxembourg
(Photo: AXA Luxembourg)
The grasshopper, having spent all summer singing, found herself destitute when the cold of winter came. She went to visit her neighbour, the ant, to complain of her hunger, begging the ant to lend her some grain to survive the harsh season. “I'll pay,” she said, “what ye invest. Both principal and interest, honour of insects--and that's tender.”
The ant, however, is no lender--especially given that she had spent all summer making provisions to prepare for winter.
This fable is often perceived as an allegory about savings planning: prepare in easier times for those “cold” days ahead. Note, however, that the tale overlooks morality: while the ant is certainly a model of organisation and foresight, she is nonetheless selfish. Although the grasshopper is generous, she cannot survive the season…
Why do we have to choose one animal or the other? It’s a challenge, but with AXA’s latest retirement savings plan, you can be both a grasshopper and an ant. Here’s how.
Remember that the Luxembourg government introduced a tax reform at the beginning of the year which led to many changes in retirement provision.
Established nearly 30 years ago, this provision has evolved over time. Today you can choose the way you access your savings at the end of your policy through an annuity, capital, or even a mixture of both. And there’s another advantage: a deductible ceiling set at €3,200.
Save more by benefiting from a substantial tax reduction--a good way for the government to revive interest in pensions, provided you have effective products!
Faced with this reform, AXA has therefore created an innovative solution called the "Save for Life Pension" that combines the security of a capital-protected fund with the dynamism of financial markets. This is a turnkey solution: it adapts to the saver's investment horizon with a proportion of sliding risk. In other words, the younger you are, the more active your dynamic assets (i.e., equities, real estate, etc.) will be. On the contrary, the closer you get to retirement, the more dynamic assets give way to secure assets (i.e., cash, bonds, etc.).
Culturally, it is a great change for Luxembourg. Previously, historical products asserted a total and permanent guarantee on capital, which condemned insurers to invest in bonds (mainly government ones) which now offer returns close to zero.
“One of the characteristics of the Save for Life Pension is its wide diversification and thus its better risk repartition. It’s rare that a market downturn simultaneously impacts all sectors of the economy; that’s why our solution invests in equities (large, small & mid caps), bonds (governments, inflation-linked bonds, real assets, etc.),” explains Georges Biver, head of life and health business, AXA Luxembourg.
“The Save for Life Pension also allows diversification in geography--the eurozone, US, emerging markets--as well as diversification in sectors, such as health, infrastructure, energy, raw materials, and so on,” he says, adding: “Given the cosmopolitan situation of Luxembourg with residents coming from all over the world, the mix of cultures brings a new appetite for risk and we need to adapt.”
AXA Investment Managers, asset manager of AXA Group, did a simulation on the effects that the Save For Life Pension would have had on investors’ savings if the plan had existed before the two financial crises. The results proved that, on one hand, investors wouldn’t have lost their capital and, on the other hand, they would have had an average yield of 4%.