Spanish retirees put €100,000 into annuities that pay just over €200 a month

Annuity: 101% of capital is only recovered upon death

A retired couple leaves their branch with a brochure under their arm and the feeling of having bulletproofed their retirement. They have placed €120,000 in an annuity sold by Santander, a Seguros Santander product linked to Spanish public debt that pays just over €200 a month for every €100,000 contributed. The heirs, including the surviving spouse, receive 101% of the initial capital. It sounds like a guaranteed income. The awkward detail is when.

The appeal is not the return, it is the convenience: money that is not needed, that will not be touched and that arrives every month in the account without surprises. The obvious question is at what price that peace of mind is bought and who keeps the difference. Because the difference exists, and it is big.

What the RAV 101 annuity is and what the KID says that they were not told

The key information document (KID), which according to the thread's author was not provided with the offer, describes a product with a recommended holding period of 27 years, a contracting age of 65 and a risk rating of 3 out of 7. In reality it is two pieces assembled: an annuity and a single-premium life insurance. The early surrender figure does not appear in the commercial brochures, and there lies the crux, always according to the thread's author: the only thing truly guaranteed is not touching the money until death.

Risk 3 has its logic. There is no deposit guarantee fund covering this contract. If the insurer runs into difficulties, coverage would come via a consortium, with doubts about its capacity to handle all policyholders.

The numbers: €200 a month versus €829 in dividends

Here the product loses its shine. There is a calculation circulating in the thread that compares the €400 monthly that two €100,000 annuities would yield with the €829 net per month that the same €200,000 would return in a British tobacco company, with $10,023 net annually. The comparison is flawed—those dividends fluctuate and are taxed—but it leaves a gap difficult to justify for anyone looking only at the monthly receipt.

The KID's own table does not help either, according to the analysis made in the thread: €7,559 return over 27 years, without breaking down the real return on the investment. Someone who puts in €10,000 would take 30 years just to recover the nominal amount. With 30-year bonds at 3% and reinvesting coupons, the figure at the end of the period would be around €24,000. The bank, it is argued, keeps that difference.

Can public debt be bought without going through the branch?

Yes, and it is the argument that most discomforts the sellers. The Treasury allows Spanish debt to be purchased online and choosing maturity, without going through the branch or signing a lifetime contract. For those who distrust the Spanish issuer, US debt at 4% is pointed out, with capital backed by its government. And for the short term, deposits from 1 to 5 years reaching 3.28% are noted.

The obstacle is not the product, it is habit. Twenty minutes of online paperwork does not compete with half an hour of conversation in an office where one has been a customer all their life.

The underlying: Spanish debt, fees and who pays the bill

The money does not sleep: it is invested in public debt. If the bond behaves and rates cooperate, everyone is happy; if the paper deteriorates, the holder notices and the heir too. A restructuring of that debt is not the central scenario, but it stops being unthinkable when central bank policy changes: it is argued that the ECB has stopped buying new debt and only renews maturities, which would push the sector to place with retail clients what it previously absorbed on its balance sheet.

There remains a fact of cold realism, according to the thread's author: inflation, understood as growth in the money supply, has been eating away at bond returns for decades. The 4% annual of old annuities was juicy; the 2-something of these, not so much.

No one disputes the right: it is their money and they do what they want with it. What is disputed is that a third of financial wealth ends up in lifetime products whose underlying is debt of the same country on which the pension and the system depend. And an anecdote told by a participant to close: the annuity of his deceased parents was collected without a single problem, exactly 101%. The shares that were in the same bank cost a lawsuit, a complaint to the Banco de España and months of blockage. The safe part was the annuity.