Once a year a letter or a client-portal message arrives from the insurer, full of tables, unit numbers and prices – and most clients look for just one line on it: how much is my money worth now, and how much have I paid in so far. If the second figure is larger, the conclusion follows: 'it earns nothing, the costs eat it up.' As a broker, I see that this feeling rarely stems from a flaw in the product and far more often from misreading the statement. The annual statement is the most honest document of a pension insurance policy: the law prescribes what it must contain, and if you know what each line means, you can see exactly where your money went, what the insurer deducted, and what the investment earned. In this article I go through what the fields mean – without figures, because your own statement shows your own numbers.
- The insurer reports on the status of the contract in writing at least once a year; for unit-linked contracts, Finance Ministry (PM) Decree 2/2019 (III. 28.) lists the required content of the statement item by item: premiums received, costs by type, unit price, benefit value and surrender value, switches between funds, and the asset funds.
- The feeling that 'it earns nothing and the costs eat it up' typically comes from looking at a single figure: comparing the current value with the payments made, while the initial costs are concentrated in the first years, the tax credit arrives as a separate item, and the return shows up in the unit price rather than in a forint line.
- The surrender value is not the same as the current value, and it does not reflect the obligation to repay the tax credits plus 20% – if you are considering leaving, the figures on the statement are only one half of the picture.
What must the statement contain? The legal minimum
The Insurance Act (Bit.) requires the insurer to inform the policyholder in writing about the status of a life insurance contract at least once a year; for unit-linked contracts, according to the Finance Ministry (PM) decree – and the guidance of the MNB (Hungary's central bank and financial supervisor) – this must relate to the same calendar day every year, the reference date, and the insurer must send it within 15 days of the reference date. For contracts linked to investment units (unit-linked contracts), the content is prescribed item by item in Section 2(1) of Decree 2/2019 (III. 28.) PM, issued under the authorisation of the Bit.: the status of the contract account, the premiums received, the costs relating to the contract, the value of the benefits used and of the residual rights, the date and proportion of switches between asset funds, the price of the investment units, the benefit value(s) and surrender value of the contract, the value of the profit participation, the names of the asset funds, where the public disclosures can be found, and the details of the insurance intermediary. Section 3(3) of the decree also states that the insurer presents all costs and deductions charged to the contract – whether scheduled or actually charged – itemised by type. With a classic (traditional) pension insurance policy there are no unit numbers or prices: there the statement typically shows the premium reserve, the profit participation and the surrender value, and the format varies by insurer. So the structure of the statement does not depend on the insurer's goodwill – the lines are there; you just need to read them.
The payments side: your own premium, the tax credit, one-off payments
The 'premiums received' line is not a single figure. It includes the regular premium (at the amount after that year's indexation, so this is where you can trace the premium increase), one-off payments and, as a separate item, the pension insurance tax credit: on the basis of your instruction, NAV (the Hungarian tax authority) transfers the 20% credit not to you but to the insurer, and the insurer credits it to the contract, typically after the tax return has been processed. This has three consequences. First: the total of payments may include the tax credit, so the accurate answer to 'how much have I paid in' comes from adding up your own premium and the credit separately. Second: if you do not see the credit item on the statement, the reason may be that the instruction to NAV was not given or was incorrect – how this works is described in the article on the NAV declaration. Third: premium arrears show up here first – if the premium received is less than the amount committed to, it is worth checking your payment schedule before the insurer's payment reminder arrives.
The costs side: by type, with the weight of the first years
The cost lines are the parts that cause the most disputes, even though under the decree they must be itemised by type. The typical items are: the initial (acquisition) cost, which products deduct from the premiums of the first years – in the form of initial units, reduced allocation or a separate deduction – so at the beginning of the term the account value necessarily remains below the payments made; the fixed administration fee, which is charged to the account monthly or annually regardless of the size of the payments; the asset-based management charge, which is typically applied by cancelling units; the risk premium, which is the price of the death or health-impairment cover; and transaction fees, for example for switches beyond the free allowance. In many products the fund management fee is not shown on a separate line but is reflected in the unit price – so the cost line on the statement is not the total cost; the full picture is given by the TKM (total cost indicator). So the question is not whether there are costs, but whether the deductions shown on the statement match the schedule and level described in the policy conditions. I wrote in more detail about what the items mean in the article on cost elements, and about how to compare them in the TKM article.
The returns side: number of units and unit price
With a unit-linked contract, the return does not appear as a forint line but as the product of two figures: the number of investment units and the unit price on the reference date. The number of units increases with payments and credits and decreases with cost deductions – this is the movement of the product; the price moves with the market – this is the investment result. If the number of units rises but the account value has fallen, the price has dropped: this is a market loss, not a cost. If the number of units in a fund has fallen while there was neither a withdrawal nor a switch, that was a cost deduction. Separating the two clears up the most common misunderstanding: the lower account value in the first years is typically the result of the initial costs, not of poor investment, whereas a bad year on the stock market reduces the value even without any costs. The switches line shows if you, or an automatic rule of the product (for example life-cycle rebalancing), changed funds. With a classic contract, the return appears in the increase in the premium reserve, calculated as set out in the policy conditions, and in the profit participation line. Bonus and loyalty credits typically get a separate line, at the policy anniversaries specified in the policy conditions.
Current value, benefit value, surrender value: three figures, three meanings
At the end of the statement there are typically three different amounts, and mixing them up leads to most bad decisions. The current (account) value is the value of the units on the reference date – this is what the savings are 'worth' in the insurer's records. The benefit value is what the insurer would pay if an event under the contract occurred – the pension benefit, death, or health impairment – according to the rules set out in the policy conditions; for the death element, this may be higher than the account value. The surrender value is what you would actually receive if you ended the contract early: the account value less the deduction in the surrender table, which is largest at the beginning of the term. And there is one figure that is not on the statement: if the contract is ended for a non-retirement purpose, under Section 44/C of the Personal Income Tax Act (Szja tv.) the tax credits received must be repaid plus 20%, and interest tax and social contribution tax may also arise on the gain. If you are considering leaving on the basis of the surrender value, you are seeing half the picture – I put together the full calculation in the article on surrender.
What should you do with the statement? Three questions, a few minutes
It is not enough to put the annual statement away: it is worth asking three questions about it. One: does the premium received match your own payments, and has the tax credit item arrived – if not, the next step is the insurer's customer service or checking your instruction to NAV. Two: do the cost deductions correspond to the types and schedule described in the policy conditions – if you cannot identify an item, ask the insurer to explain its type and how it was calculated – under the decree the insurer must present deductions itemised by type, and under the complaint-handling rules it must reply to your written complaint on the merits and in writing. Three: do the fund mix and the risk level still match your goal and the remaining term – if not, products typically allow a set number of free switches each year; the details vary by insurer. If you find an error on the statement, the primary route for reporting it is the insurer's customer service; if the matter becomes disputed, the Financial Arbitration Board (PBT) or the court decides – the MNB does not decide individual disputes. If you get stuck interpreting the statement and let me know, I help where I can with going through the lines; the decision – to stay, to make changes or to leave – is yours. This much is certain: without reading the statement, the feeling that 'it earns nothing' and the feeling that 'it is doing well' are equally unfounded.
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Sources
- Decree 2/2019 (III. 28.) PM of the Minister of Finance on the form and content of information to be provided to clients for unit-linked life insurance – Section 2(1) (content of the annual information), Section 3(3) (costs by type)
- Insurance Act (Bit.) – Act LXXXVIII of 2014 (written information to the life insurance policyholder at least once a year; Section 438(a) – authorisation for the PM decree)
- MNB (Hungarian central bank / supervisor) Financial Navigator: Unit-linked life insurance (written information once a year, reference date, delivery within 15 days, stating the type of each item)
- Personal Income Tax Act (Szja tv.) – Act CXVII of 1995, Section 44/C (pension insurance tax credit: NAV transfers it to the insurer; repayment of the credits plus 20% if the contract is ended for a non-retirement purpose)
