Austria - Explanation of Pension Options

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Austria - Explanation of Pension Options

Post by nomadboglenoob »

Hey,

I'm meeting with a tax advisor soon to understand my best approach for Pension Savings and Savings in Austria for my situation. I need some help from you understanding some options I have:

Option One
The Bogle way... invest in reporting ETFs through a low-fee, tax-easy broker. But as I will move country in Europe the future, I will likely have to withdraw and reinvest via another broker when moving country and will be hit with capital gains tax repeatedly on the same profits.

Option Two
I believe there are certain pension insurance products in Austria that are 1. more tax efficient and 2. can be paid into from abroad (potentially solving the issue I will come up against when moving countries).

I'm confused by the products available however. I see two that seem to be relevant:
  • Pension insurance - this seems to come with a guaranteed interest rate based on a set withdrawal date (?)
  • Fund and index-based life insurance - this seems to be basically option one, but through an insurance company opperating as the broker (?)
Can someone explain to me in layperson terms what is the difference between Fund index-based life insurance and Option One. Mention any tax benefits if you're aware of them - and if this 'payment from abroad' is actually a real notion.

Thanks
Laurizas
Posts: 515
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: Austria - Explanation of Pension Options

Post by Laurizas »

nomadboglenoob wrote: Thu Aug 26, 2021 6:39 am Option One
The Bogle way... invest in reporting ETFs through a low-fee, tax-easy broker. But as I will move country in Europe the future, I will likely have to withdraw and reinvest via another broker when moving country and will be hit with capital gains tax repeatedly on the same profits.
There should be a possibility to transfer your portfolio to new broker without selling.
SavinginVienna
Posts: 3
Joined: Sun Aug 22, 2021 4:04 am

Re: Austria - Explanation of Pension Options

Post by SavinginVienna »

Laurizas wrote: Mon Aug 30, 2021 1:49 pm
nomadboglenoob wrote: Thu Aug 26, 2021 6:39 am Option One
The Bogle way... invest in reporting ETFs through a low-fee, tax-easy broker. But as I will move country in Europe the future, I will likely have to withdraw and reinvest via another broker when moving country and will be hit with capital gains tax repeatedly on the same profits.
There should be a possibility to transfer your portfolio to new broker without selling.
I think that changing your main residence status(I.e. moving to another country from AT) results in a "fictional sale" leading to the taxation of all cap gains when leaving.

"Steuerpflichtig unter dem neuen KESt-Regime sind nicht nur tatsächliche Realisierungen zB durch Verkauf, Einlösung oder Abschichtung. Vielmehr fingiert das Gesetz unter dem Ziel eines möglichst friktionsfreien Besteuerungssystems auch eine Realisierung durch Veräußerung im Falle der Depotübertragung (Entnahme und sonstiges Ausscheiden aus dem Depot) bzw im Wegzugsfall (Verlust des österreichischen Besteuerungsrechts"
User avatar
alpine_boglehead
Posts: 683
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Austria - Explanation of Pension Options

Post by alpine_boglehead »

nomadboglenoob wrote: Thu Aug 26, 2021 6:39 am Hey,

I'm meeting with a tax advisor soon to understand my best approach for Pension Savings and Savings in Austria for my situation. I need some help from you understanding some options I have:

Option One
The Bogle way... invest in reporting ETFs through a low-fee, tax-easy broker. But as I will move country in Europe the future, I will likely have to withdraw and reinvest via another broker when moving country and will be hit with capital gains tax repeatedly on the same profits.
It doesn't seem likely that you pay capital gains tax repeatedly on the same profits. If that were the case, when changing countries, you could just sell in the old one, pay taxes, and start with the new base in the new country. However, it still sucks because you can't leave your capital alone and are forced realize the gains and pay taxes.
nomadboglenoob wrote: Thu Aug 26, 2021 6:39 am Option Two
I believe there are certain pension insurance products in Austria that are 1. more tax efficient and 2. can be paid into from abroad (potentially solving the issue I will come up against when moving countries).

I'm confused by the products available however. I see two that seem to be relevant:
  • Pension insurance - this seems to come with a guaranteed interest rate based on a set withdrawal date (?)
  • Fund and index-based life insurance - this seems to be basically option one, but through an insurance company opperating as the broker (?)
Can someone explain to me in layperson terms what is the difference between Fund index-based life insurance and Option One. Mention any tax benefits if you're aware of them - and if this 'payment from abroad' is actually a real notion.

Thanks
I don't really know all the details of the private pension options in Austria, but from what I've read and seen, I've judged them worse than what I can do myself via low-cost index funds or even CDs. Your situation may be different, though (I'm in Austria and plan to stay here). The insurance products usually have high fees, caveat emptor. I have no good opinion of the products available.

There seem to be some tax-advantaged options (like adding to a company-sponsored pension), but you have to decide whether the tax advantage outweighs potential disadvantages, which can be high fees (detailed specifications of the costs are usually hard to find, AUM fees can easily be 1%+), being forced to invest in government bonds (which are negative interest bearing), being forced to invest the stock portion only in the Austrian stock market, or investing into expensive actively managed mutual funds managed by the insurance company (as is often the case of fund index-based life insurance).

Your best bet might be moving to Norway, their sovereign wealth fund seems to be very bogleheadian :wink:
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Re: Austria - Explanation of Pension Options

Post by nomadboglenoob »

alpine_boglehead wrote: Sun Sep 05, 2021 4:28 pm I don't really know all the details of the private pension options in Austria, but from what I've read and seen, I've judged them worse than what I can do myself via low-cost index funds or even CDs. Your situation may be different, though (I'm in Austria and plan to stay here). The insurance products usually have high fees, caveat emptor. I have no good opinion of the products available.

There seem to be some tax-advantaged options (like adding to a company-sponsored pension), but you have to decide whether the tax advantage outweighs potential disadvantages, which can be high fees (detailed specifications of the costs are usually hard to find, AUM fees can easily be 1%+), being forced to invest in government bonds (which are negative interest bearing), being forced to invest the stock portion only in the Austrian stock market, or investing into expensive actively managed mutual funds managed by the insurance company (as is often the case of fund index-based life insurance).
Thanks. I'm meeting with an Insurance agent in the coming week (from Allianz) where I've asked them to explain these tax benefits as well as any other reasons why I should opt for buying through them rather than a digital broker. I'll report back!
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Re: Austria - Explanation of Pension Options

Post by nomadboglenoob »

I spoke to a local tax and finance advisors.

In Austria, it appears to be highly beneficial to invest into ETFs/Mutual Funds through a 'life insurance' wrapper rather than directly through a digital broker as there are some serious Tax benefits.

The benefits are:
- rather than paying the capital gains tax on the accumulating funds and on the eventual withdrawal of the fund, you pay taxes upfront at just 4% on the original amount invested
- given that Austria's capital gains tax is at 27.5% on profits, it represents a huge tax saving

Of course, there are fees to factor in here and I'll need to find an insurance wrapped fund that is as close to the original fund performance as possible (e.g. minimal insurance coverage, maximum exposure to funds performance) - but it still represents a big saving.

The only downside is that in my situation where I will probably end up moving around Europe in the future:
- I can pay into the fund from anywhere in Europe, and continue to pay the tax fee on entering the fund from anywhere in Europe
- BUT if I eventually try to withdraw the fund in another country I may get hit with their local capital gains.

This last point is something I will now take up with my tax advisor - as it would undo all the benefits if I get double taxed.

If you have any input or know the above to be wrong, please let me know!!
User avatar
alpine_boglehead
Posts: 683
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Austria - Explanation of Pension Options

Post by alpine_boglehead »

nomadboglenoob wrote: Tue Sep 21, 2021 10:02 am I spoke to a local tax and finance advisors.

In Austria, it appears to be highly beneficial to invest into ETFs/Mutual Funds through a 'life insurance' wrapper rather than directly through a digital broker as there are some serious Tax benefits.

The benefits are:
- rather than paying the capital gains tax on the accumulating funds and on the eventual withdrawal of the fund, you pay taxes upfront at just 4% on the original amount invested
- given that Austria's capital gains tax is at 27.5% on profits, it represents a huge tax saving

Of course, there are fees to factor in here and I'll need to find an insurance wrapped fund that is as close to the original fund performance as possible (e.g. minimal insurance coverage, maximum exposure to funds performance) - but it still represents a big saving.

The only downside is that in my situation where I will probably end up moving around Europe in the future:
- I can pay into the fund from anywhere in Europe, and continue to pay the tax fee on entering the fund from anywhere in Europe
- BUT if I eventually try to withdraw the fund in another country I may get hit with their local capital gains.

This last point is something I will now take up with my tax advisor - as it would undo all the benefits if I get double taxed.

If you have any input or know the above to be wrong, please let me know!!
Sounds interesting. I had read about this only for Germany under the name "ETF im Versicherungsmantel".

Do really calculate the fees. There has to be a reason why not everyone is running to these products. If they e.g. have a 1% AUM fee per year, that could undo the tax savings over the long term.

A short search for me only turned up insurance wrappers for active mutual funds with high fees. I would be really interested if you find products which actually have an underlying ETF (i.e. something like iShares Core MSCI World UCITS ETF) AND are low-cost. One trick I saw in one of the prospectuses is that they benchmarked their product against "MSCI AC World Price Index in EUR". Hah - a price index (i.e. with out dividends) - 2% (before taxes) dividends per year, just flushed down the fee toilet.

Another thing that comes to mind is counterparty risk. If I hold an ETF at my broker, I (via the fund) more or less directly hold shares of companies world-wide. Insurance products are often contracts with a single party (the insurance company).

A topic that came up in the media recently is that the current government plans to reintroduce the 1 year holding period (Spekulationsfrist) that was in effect until 2012, where you paid no capital gains tax if you held longer than 1 year. But it's uncertain when or whether this will take effect.

Of course, your situation is special, because as I understand it the insurance wrapper would prevent a taxation of the investment while you're moving around.

And as so often in finance, it's not a binary choice. You can invest one part in such a product and another part in something else.
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Re: Austria - Explanation of Pension Options

Post by nomadboglenoob »

alpine_boglehead wrote: Tue Sep 21, 2021 11:04 am Sounds interesting. I had read about this only for Germany under the name "ETF im Versicherungsmantel".

Do really calculate the fees. There has to be a reason why not everyone is running to these products. If they e.g. have a 1% AUM fee per year, that could undo the tax savings over the long term.

A short search for me only turned up insurance wrappers for active mutual funds with high fees. I would be really interested if you find products which actually have an underlying ETF (i.e. something like iShares Core MSCI World UCITS ETF) AND are low-cost. One trick I saw in one of the prospectuses is that they benchmarked their product against "MSCI AC World Price Index in EUR". Hah - a price index (i.e. with out dividends) - 2% (before taxes) dividends per year, just flushed down the fee toilet.

Another thing that comes to mind is counterparty risk. If I hold an ETF at my broker, I (via the fund) more or less directly hold shares of companies world-wide. Insurance products are often contracts with a single party (the insurance company).

A topic that came up in the media recently is that the current government plans to reintroduce the 1 year holding period (Spekulationsfrist) that was in effect until 2012, where you paid no capital gains tax if you held longer than 1 year. But it's uncertain when or whether this will take effect.

Of course, your situation is special, because as I understand it the insurance wrapper would prevent a taxation of the investment while you're moving around.

And as so often in finance, it's not a binary choice. You can invest one part in such a product and another part in something else.
Thanks. I'll come back to this thread when I have some suggested products. Could do with some help dissecting them.

And apt point on diversifying where I put the money.
User avatar
alpine_boglehead
Posts: 683
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Austria - Explanation of Pension Options

Post by alpine_boglehead »

nomadboglenoob wrote: Tue Sep 21, 2021 12:11 pm
Thanks. I'll come back to this thread when I have some suggested products. Could do with some help dissecting them.
Looking forward to it.

A quick back of the envelope excel calculation shows that costs higher than circa 1.5% p.a will lose out to a normal brokerage holding over any timespan. (again, not considering your special circumstances of having intermediate taxation of brokerage accounts as you change domicile)

One additional advantage of having tax-protected investments in real assets is that it provides a certain protection against high-ish inflation. E.g. if there is zero real growth but 100% inflation, an ETF investor will lose a quarter of his nominal capital gains to taxes, whereas a tax-protected investor doesn't.
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Re: Austria - Explanation of Pension Options

Post by nomadboglenoob »

I've had the following back from the consultant.

INSURANCE OFFER

I asked for them to map 2 scenarios:
- paying 500 a month into the insurance
- OR paying 1000 a month
Retiring at 55 (I'm 34 now).

From the email they sent me:
WWK Life Insurance: 500/1000 until 55 – I have included a range of mutual funds and managed portfolios.
Those numbers are calculated with a 4,5% return of the funds – but there is a higher performance that they achieve. In Average between 6 and 8% p.a

500,-  167.601 €  475,77 p.m
1000,-  336.025 €  953,78 p.m
Not really enough to sustain a retirement :wink:

Then from the WWK 1000 EURO proposal:

Image
Image

What do you all think?


MANAGED INVESTMENT OFFER

They also put together a separate proposal for a lump sum of 40.000 I have with a monthly payment of 500 EURO

Take a look:

Image

Any thoughts?

Thanks

P
User avatar
alpine_boglehead
Posts: 683
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Austria - Explanation of Pension Options

Post by alpine_boglehead »

nomadboglenoob wrote: Fri Sep 24, 2021 6:28 am
Any thoughts?

Thanks

P
I'm a bit disappointed. No ETF inside? :wink: (I didn't find any products with ETFs either)

So you start off with 5,7% less than your initial amount. Are there any taxes? (you mentioned upfront taxes of 4%, and I can't believe that the insurance company is satisfied with 1.7%).

The scenario numbers are what they are, if you calculate these in Excel you get pretty much the same amounts. Doesn't say anything about the product.

Looking up the expense ratio of some funds shows them to be between 1.5% and 2%, which is quite high. The selection of the funds seems to be smorgasbord of trending topics, i.e. what performed well in the recent past and caters to people's current tastes. The weird fund mix is probably also intended to suggest that it's diversified, but a single all-world ETF would likely be better diversified.

Are there any other costs involved? Or does the insurance company live only off the kickbacks they get from the funds?

The fund selection has another peculiarity. Almost all big ETFs are domiciled in Ireland, because it has a favorable tax treaty with the US (withholding tax rate of 15% instead of the normal 30%). The funds here are domiciled in Germany and Luxembourg. AFAIK Luxembourg suffers froma 30% withholding tax rate on US dividends. From the bogleheads wiki
Ireland is the most common domicile for non-US domiciled ETFs, although Luxembourg is another popular non-US domicile for ETFs. Of the two, Ireland has the better treatment for dividends from US stocks. ETFs domiciled in Ireland can take advantage of the US/Ireland treaty rate of 15%, but because of a less favourable US treaty ETFs domiciled in Luxembourg suffer 30% tax withholding on dividends from US stocks.[6][7] In general then, if avoiding US domiciled ETFs you should prefer Ireland domiciled ETFs over Luxembourg domiciled ones unless the ETF itself holds no US stocks.
There is mention of "Profit Sharing" - this could mean that you get some the fund expense ratio back. Ask about that.

I don't know what is meant by "death benefit". If you have kids (or intend to have ones), you might think about whether you want to leave them something after your death. Because a pension usually ends when you die.

One point you might ask a tax accounting or advisor is whether payouts from such products are taxed in other countries (in Austria they might not be taxed, but what about the rest of Europe?). Tax laws can always change of course, but e.g. if the general situation , it is likely to also be that way in the future.

Another thought on the current situation. The main line of thinking among (conversative) posters here seems to be that because equity valuations are currently high-ish, future returns are expected to be low-ish. Of course, no one knows for sure. However, if future returns are low, the added value of such a tax-sheltered product over conventional holdings is reduced because there are not that much gains to be taxed anyway. Returns are not guaranteed, but costs are.

As an Austrian intending to stay here, I wouldn't buy into this product, I think with the costs involved I'm better off with a simple passive portfolio at a broker. You have to factor in your risk/fact of getting the capital gains taxed while moving around. But even then, I'm not sure I would do this, because it essentially means letting the tax tail wag my investment dog, with tax considerations forcing me into an expensive and complex product.

To add something positive (you might guess I'm not partial to financial products): One upside of pension insurance is that it's a longevity insurance. If you happen to live until 100, you still get your pension, whereas a portfolio might be depleted if you draw it down.
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Austria - Explanation of Pension Options

Post by TedSwippet »

alpine_boglehead wrote: Sun Sep 26, 2021 1:02 am The fund selection has another peculiarity. Almost all big ETFs are domiciled in Ireland, because it has a favorable tax treaty with the US (withholding tax rate of 15% instead of the normal 30%). The funds here are domiciled in Germany and Luxembourg. AFAIK Luxembourg suffers froma 30% withholding tax rate on US dividends. From the bogleheads wiki ...
Yeah, I should probably try to nuance this a bit. A Luxembourg domiciled fund could remove this disadvantage by using synthetic replication. Rather than owning US stocks, it would instead trade in swaps, futures and so on, so as to create the same results as physical replication (either full, or sampling), but without the US tax drawback. In practice, because this entirely eliminates US dividend tax drag, it could turn out to be more tax efficient than Ireland domicile.

It's a subtle point. Some Luxembourg domiciled funds are synthetic (example search on JustETF here: link), but not all. A synthetic fund has a few additional (though some argue, remote) risks, for example counterparty, that you don't find in replicating fund structures. And it's not clear to me what type of thing -- replicating or synthetic -- any of the Luxembourg domiciled items in this suggested portfolio are. They are not ETFs, which makes it a bit harder to find full information for them.
User avatar
BeBH65
Posts: 1763
Joined: Sat Jul 04, 2015 7:28 am

Re: Austria - Explanation of Pension Options

Post by BeBH65 »

nomadboglenoob wrote: Mon Sep 06, 2021 9:34 am Thanks. I'm meeting with an Insurance agent in the coming week (from Allianz) where I've asked them to explain these tax benefits as well as any other reasons why I should opt for buying through them rather than a digital broker. I'll report back!
nomadboglenoob wrote: Tue Sep 21, 2021 10:02 am I spoke to a local tax and finance advisors.

In Austria, it appears to be highly beneficial to invest into ETFs/Mutual Funds through a 'life insurance' wrapper rather than directly through a digital broker as there are some serious Tax benefits.
Don't forget that your insurance person is a salesperson. He is not an advisor.
Make sure you received an independent advise from a person that is a fiduciary.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Re: Austria - Explanation of Pension Options

Post by nomadboglenoob »

Thanks all.
alpine_boglehead wrote: Sun Sep 26, 2021 1:02 am
There is mention of "Profit Sharing" - this could mean that you get some the fund expense ratio back. Ask about that.
I’m going to go back to him with the following questions, anything to add?

1. So I start off with 5,7% less than your initial amount. Are there any taxes? (you mentioned upfront taxes of 4%, does the insurance company only take 1.7% in fees?).

2. Looking up the expense ratio of some funds shows them to be between 1.5% and 2%, which is quite high. Are there any other costs involved? Or does the insurance company make profit only off the kickbacks they get from the funds?

3. There is mention of "Profit Sharing" - what does this mean please?

4. Can you show me the long list of funds that are available to choose to package within WWK please? Am I allowed to select these myself?

BeBH65 wrote: Sun Sep 26, 2021 5:32 am
Don't forget that your insurance person is a salesperson. He is not an advisor.
Make sure you received an independent advise from a person that is a fiduciary.
FYI the person I’m speaking to works at EURO FINANZ SERVICE AG an insurance sales group.

What does a fiduciary do? Any recommendations for one based in Austria/Salzburg with a good understanding of international tax moves?
User avatar
alpine_boglehead
Posts: 683
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Austria - Explanation of Pension Options

Post by alpine_boglehead »

nomadboglenoob wrote: Mon Sep 27, 2021 5:45 am I’m going to go back to him with the following questions, anything to add?
Most important question: Are there ANY insurances in Austria which package ETFs?

Btw, the list of funds to choose is a good idea - that way you can choose by expense ratio, diversification and fund size. E.g. DWS Top Dividende has "only" 1.45% expense ratio and is somewhat diversified. Its composition tilts towards value (which may be why the other funds in the selection are more geared towards growth), it hasn't reach the pre-COVID highs yet. Value might be a good thing as currently growth seems frothy, but no one knows.
nomadboglenoob wrote: Mon Sep 27, 2021 5:45 am FYI the person I’m speaking to works at EURO FINANZ SERVICE AG an insurance sales group.

What does a fiduciary do? Any recommendations for one based in Austria/Salzburg with a good understanding of international tax moves?
A fiduciary is an advisor that has the duty to act in your best interest (and ideally, has no conflict of interest). You usually pay them a hourly rate, they don't get kickbacks from the products they recommend. I don't know of any in our region (I've read some recommendations here on bogleheads, but these are for the US), but you can google "Honorarberatung".
The insurance sales persons have a conflict of interest, because they will try to sell you the products from which they benefit the most. You have two mouths to feed off your portfolio - the insurance sales person and the insurance company.
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Re: Austria - Explanation of Pension Options

Post by nomadboglenoob »

alpine_boglehead wrote: Tue Sep 28, 2021 8:38 am
nomadboglenoob wrote: Mon Sep 27, 2021 5:45 am I’m going to go back to him with the following questions, anything to add?
Most important question: Are there ANY insurances in Austria which package ETFs?

Btw, the list of funds to choose is a good idea - that way you can choose by expense ratio, diversification and fund size. E.g. DWS Top Dividende has "only" 1.45% expense ratio and is somewhat diversified. Its composition tilts towards value (which may be why the other funds in the selection are more geared towards growth), it hasn't reach the pre-COVID highs yet. Value might be a good thing as currently growth seems frothy, but no one knows.
According to the broker there are no insurances that offer ETFs in their selection of funds.

The full list of funds to select from is available here: https://www.wwk.at/beratung-service/ku ... rningstar/

I am also getting a full breakdown of all the insurance company fees & taxes that are applied to try and get a feeling of the real underlying cost of this product vs ETF investing with a broker. Will come back with a breakdown.

FUND COMPARISON

Image

The insurance salesperson provided me this as an argument for opting for these managed funds over the ETFs I’d talked about. It’s based on historic 10 year data.

I’ve just used the Financial Times’ tool to draw a comparison chart- and it seems impossible to compare these options on a 10 year timeline as neither the Vanguard nor iShares ETFs have been around that long. The returns on those funds provided by the insurance salesperson are great, but the risk and costs are certainly higher.

Any comments on this?

Thanks all
Laurizas
Posts: 515
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: Austria - Explanation of Pension Options

Post by Laurizas »

nomadboglenoob wrote: Fri Oct 01, 2021 5:25 am it seems impossible to compare these options on a 10 year timeline as neither the Vanguard nor iShares ETFs have been around that long.
Ishares core world inception date is 2009 September 25
https://www.justetf.com/en/etf-profile. ... 3#overview
Topic Author
nomadboglenoob
Posts: 30
Joined: Wed Aug 04, 2021 2:18 pm

Re: Austria - Explanation of Pension Options

Post by nomadboglenoob »

Laurizas wrote: Fri Oct 01, 2021 6:15 am
nomadboglenoob wrote: Fri Oct 01, 2021 5:25 am it seems impossible to compare these options on a 10 year timeline as neither the Vanguard nor iShares ETFs have been around that long.
Ishares core world inception date is 2009 September 25
https://www.justetf.com/en/etf-profile. ... 3#overview
Thanks! Still not sure on how to interpret that chart…
Laurizas
Posts: 515
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: Austria - Explanation of Pension Options

Post by Laurizas »

User avatar
alpine_boglehead
Posts: 683
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Austria - Explanation of Pension Options

Post by alpine_boglehead »

nomadboglenoob wrote: Fri Oct 01, 2021 5:25 am
The insurance salesperson provided me this as an argument for opting for these managed funds over the ETFs I’d talked about. It’s based on historic 10 year data.
... sooooo? They picked the highest-performing funds over that time period. Anyone can pick the best funds of the last 10 years. I can single-handedly pick stocks for you that have beaten these funds over the last 10 years :twisted:

The list of funds is a mixed bag, and quite a lot of them had sub-par performance (compared to e.g. the MSCI World index ETF, which should be the reference point, for which Laurizas sent you the justETF link), attributable to unfavorable stock/region/sector selection and of course costs.

The distributing version of the iShares MSCI World ETF goes even back to 2006, see https://www.justetf.com/en/etf-profile. ... 2Q58#chart

I will pick C-QUADRAT ARTS TOTAL RETURN BALANCED T as a counter-example of a fund that didn't perform well from the list (with an expense ratio of 2.78%). Since 2004 it had a total performance of 112%, annualized 4.5%. Which is quite low for a balanced fund, considering that government bonds back then had similar yields (US Treasury 10 year was about 4.5% in 2004), and stocks did also well because 2004 was still in the trough after the .com bubble (the MSCI world had a 8% annualized return since then). But with an expense ratio it's to expect.

As a sidenote for the "10 year comparison" the Vanguard LifeStrategy family of ETFs has been available for 9 months now.
nomadboglenoob wrote: Fri Oct 01, 2021 5:25 am
The returns on those funds provided by the insurance salesperson are great, but the risk and costs are certainly higher.
Skating where the puck was, at high cost.

In my view your best bet is to pick an equity fund (fixed-income apart from junk bonds has such low yields now that you don't need to tax-shelter them) with a low expense ratio and large enough fund size (so the risk of it getting dissolved is low) that provides reasonable diversification (i.e. somewhat approximates the MSCI ACWI index).
User avatar
alpine_boglehead
Posts: 683
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Austria - Explanation of Pension Options

Post by alpine_boglehead »

nomadboglenoob wrote: Fri Oct 01, 2021 5:25 am
Any comments on this?

Thanks all
See this other interesting thread, there's a tool which offers very detailed comparisons of life insurance wrappers for funds (among others) in Austria.
Post Reply