Wednesday, September 27

Saving for retirement: the pulse between the pillars of pensions

The necessary boost for the so-called second pillar of individual pension savings cannot be developed to the detriment of the third pillar: traditional pension plans.

The development of the second pillar must act as a complement to this objective by finding solutions so that participants plan their retirement correctly, so that they can maintain their purchasing power after working life and obtain returns and, thus, optimize the capitalization of accumulated savings the effort of so many years of work.

The savings planning alternative for retirement, which takes the form of pension plans, has very few tax incentives in Spain, when compared to the rest of the developed countries of the OECD.

Despite this, it continues to set record highs every year, which consolidates the interest of Spanish savers in this product. However, the latest tax changes put the future development of individual pension plans at risk.

Slowdown in contributions

So much so that these decisions conditioned contributions in 2021 to the point that almost 3 out of 4 managers predicted, in the latest survey of pension fund managers prepared by the Inverco Observatory, a slowdown in gross contributions in 2021 of more than 20 percent.

In this scenario, the perception in the industry is unanimous about the need for the deductible contribution limit to be well above 2,000 euros and to activate other types of tax incentives, such as improving taxation in the benefit.

In fact, it is not surprising that precisely tax issues become one of the factors that pension plan participants value the most, above profitability or professional management. This taxation does not imply a fiscal benefit but a mere deferral, since at the moment of receiving the benefit it is taxed.

In the last two years, in which we have faced an extraordinarily complex scenario in all areas derived from the irruption of the Covid-19 pandemic, the maturity of the Spanish participant has also been demonstrated, reaping the fruits of an effort shared by the entire industry and by the clients themselves to promote financial education and the use of long-term savings or forecasting tools.

Sending of the estimated pension to future pensioners

In this sense, the pension fund managers agree in pointing to the annual sending of the estimated pension to future pensioners, a legal obligation that has not been fulfilled since 2011, as the main reform that the pension system needs in Spain, followed by the introduction of notional accounts.

Ultimately, there are two issues that are called to play a prominent role in the management of pension plans throughout this newly released 2022.

On the one hand, sustainability and the integration of ESG criteria in the field of savings, a trend that is gaining more and more strength, as shown by the fact that seven out of ten fund managers already have a pension plan in line with environmental, social and environmental criteria. and good governance –20 points more than the previous year–.

The second topic will be, as has been seen in recent months, the development of company pension plans, with a model that will differ from the one existing in the United Kingdom, based on the default assignment of workers to this product, which, however, in Spain is going to be based on voluntariness.