Explain annuity conversion factors: what else is guaranteed?

A high annuity conversion factor sounds like a high future pension. In your advisory conversation, however, the figure becomes meaningful only alongside the capital to which it applies. Explaining these two quantities clearly helps prospects assess an offer without misplaced certainty. You can show what is already fixed, what depends on the eventual policy value and which question still needs answering before a choice.

Distinguish two different promises

The conversion factor usually states the monthly pension for every €10,000 converted into an annuity. A promised conversion basis therefore differs from promised capital. With an assumed factor of 25, €100,000 mathematically produces €250 a month. Unless that capital is also promised, the factor alone does not guarantee a €250 monthly pension. This calculation assumes a factor stated for monthly payments. The GDV explanation of conversion factors also makes this distinction.

Start with the wording of the actual document. Does it state a guaranteed pension amount, a guaranteed factor or a possible pension under specified assumptions? First ask the prospect which figure they have understood as certain. This establishes whether you are discussing the same thing. Then connect the label to its actual meaning. Highlighting a figure in colour adds no contractual force; the accompanying statement in the policy remains decisive.

Next ask which part of the capital the promise covers. Wording concerning one capital component does not automatically explain how other components are treated. Record capital basis and factor together. Where the provider identifies several calculation components, ask for their relationship to be explained. A single total in a presentation should not conceal these differences. Your customer should be able to see how the displayed pension was assembled.

Make the calculation basis visible together

A small calculation with clearly labelled assumptions is enough to explain the relationship initially. Write capital divided by 10,000, then multiply by the monthly factor. This shows the connection better than an isolated percentage. Under this definition, the factor is not the annual return on the investment. Reading it as a return answers a different question and can distort the assessment of the offered pension.

During the discussion, distinguish today’s policy value, assumed capital at retirement and any promised minimum capital. Each amount needs its date and label. A current value can describe the starting position; an illustration can show a future scenario. Neither belongs in the other’s column without justification. If the document does not permit this allocation, request an explanation before deriving a fixed monthly pension from it.

Even correct arithmetic can use the wrong basis for a decision. Check that the factor belongs to the stated retirement date and the pension benefit actually described. Different dates or benefit designs remain separate calculations initially. Request matching documents for a concrete comparison. This protects the prospect from an apparently precise ranking in which different calculation tasks compete and the largest amount wins for that reason alone.

Separate guarantees from illustrations in your advice

For policies with profit participation, section 155 VVG requires information about the current entitlements and the extent to which profit participation is guaranteed, among other things. For your explanation, read the benefit figures with their conditions. Benefits assuming unchanged continuation describe a different case from benefits assuming a paid-up policy. This distinction helps assign figures in an annual statement to the appropriate policy scenario.

Show separately what the documents promise and what they present as a possible development. For a higher illustrated pension, ask which assumptions explain the difference from the promised benefit. You do not need to invent a market outlook. The value of your advice is making the actual statements understandable and clarifying missing connections with the provider. The more attractive figure then takes its proper place in the decision.

An individual provider can explain a particular design without describing the whole market. For example, BGV’s product page mentions a factor guaranteed at inception. Use such statements as a reason to read the precise promise in the offer concerned. Transfer neither this design nor other advertising claims to unrelated policies. Your comparison depends on the version actually offered, rather than assuming all products work alike.

What a higher figure still leaves open

With an identical capital basis, a higher factor can mathematically produce more monthly pension. That is not yet a complete quality judgment on two policies. If capital bases or pension designs differ, those differences need explaining first. Limit your conclusion to the part clarified. An understandably limited statement offers more guidance than an overall winner whose conditions disappear into small print.

Consider the customer’s actual question too. If they want to understand an existing promise, your result should explain that promise. If they are comparing new offers, they need the corresponding comparison. Both can use the same formula while leading to different next steps. An existing policy made understandable does not automatically need replacing with a new offer. Equally, a clear illustration is not a personal product recommendation.

A general product page is insufficient to assess amendment clauses. If an individual policy leaves uncertainty about a guarantee’s scope or a possible adjustment, keep the precise wording together with the provider’s answer. Where needed, legal assessment belongs with an appropriately qualified professional. The customer can then distinguish an understandable benefit description from an unresolved legal question, instead of combining both under the word guarantee.

A fictional numerical case makes the difference tangible

The following calculation is entirely fictional; its factors and capital amounts describe no real offers.

An illustration combines a factor of 25 with assumed capital of €100,000. This mathematically produces €250 a month. The prospect has understood that €250 as a firm promise. Reading together reveals that the capital is labelled as an assumption. Your first advisory step is therefore to correct the interpretation: the calculation explains the relationship between the quantities; it does not establish that the capital assumption will materialise.

Add a second freely chosen capital assumption of €80,000 and retain the factor of 25. The result is now €200 a month. The factor has not changed, yet the outcome differs by €50. The customer sees precisely why the capital basis matters. You have assigned no probability to either scenario. The two calculations explain only how the pension amount responds to the capital figure used.

The prospect now presents another fictional illustration with a factor of 30. With the same €80,000 it would produce €240 a month; with €100,000 it would produce €300. These figures permit a clean arithmetic comparison. Choosing an offer still requires the respective promises and conditions. Your team therefore requests precise identification of the guaranteed factor, covered capital and stated pension form. A clear calculation leads to a precise provider question rather than replacing it.

Explain what the answer means for the customer

When supplementary information arrives, first check whether it answers your actual question. A new illustration with a higher figure does not necessarily clarify the original promise’s scope. Look for the capital basis requested, the relevant date and the factor applied. Only once these three match should you incorporate the answer into your explanation. A change of document then remains understandable in substance and does not appear to resolve anything merely by adding paperwork.

Then ask the prospect to describe the relationship in their own words. A useful answer would be: “The conversion basis can be fixed even though the eventual capital is not.” If they still mention only the highest pension figure, return to its assumptions. This brief understanding check shows whether your explanation has reached the customer. It requires neither technical terminology nor an arithmetic test; it reveals what the eventual choice will actually rest on.

If the response establishes a reliable promise, describe its scope precisely. If one part remains open, identify that part and its effect on the next decision. The calculation method might already be clear while treatment of an additional capital component still needs explanation. The customer can then ask targeted questions. They need neither discard all the information nor treat an unclear total pension as a settled personal plan.

Turn numerical understanding into a reasoned choice

When discussing several variants, ask which kind of statement the customer wants to prioritise. Do they first want to understand a promised minimum benefit or compare possible developments under common assumptions? Place the relevant figures side by side. Other policy aspects remain relevant to a later complete assessment, but need not be pulled into this particular calculation question. Your explanation stays focused on the clarity needed for the current choice.

Finally, record the document version and explained assumptions together. If the capital assumption, retirement date or benefit form changes later, revisit the affected calculation. An old monthly figure can otherwise easily become an apparent promise for a new case. Clear allocation gives your customer an understandable decision basis and your team documentation that supports further professional work. The next assignment can build on the clarified question instead of repeating the same numerical misunderstanding.

The unit of the displayed benefit also deserves attention. If the document gives a monthly amount, keep it monthly in your explanation. An annual total alongside it must not look like a second, additional benefit. Show the conversion and record whether you are simply expressing the same payment differently. This helps especially when different documents use different presentations.

Finally, check whether the customer has already budgeted the calculated benefit as money available for ongoing expenses. Explain that the calculation so far describes the stated pension amount. Any deductions relevant to their personal circumstances need separate clarification with the responsible professionals.

Where capital has several components, use a separate calculation line for each. Ask which factor applies and whether the component pensions add up to the displayed total. If a difference remains, first check rounding and the stated calculation bases. Do not adjust the factor yourself to make the result fit. The unexplained difference becomes a specific question.

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