They want these contributions to be allowed for public employee pension plans, which have been frozen since 2012
Greater involvement of the public administration, through advertising campaigns to raise public awareness of the importance of complementary welfare schemes for retirement, and the reactivation of contributions to public employee pension plans are some of the measures that could boost employment pension plans in line with the government's objective that the second pillar should become increasingly important in the financial savings of Spanish families. This was made clear by the participants in the Pension Plans Observatory: Challenges for 2024, sponsored by Cecabank, where several representatives from different fund managers shared their views on the outlook for the new publicly promoted employment pension funds and simplified plans, among other related topics.
Publicly promoted employment pension funds will pass their litmus test this year, when they will formally commence their journey. Following the selection of the five investment firms and the formal registration of the three funds that each will manage (one fixed-income, one mixed and one equity), the only remaining step is for the launch of the digital platform on which they will be embedded and for the process of integrating the various pension plans that will comprise them to begin.
To promote this, the figure of simplified employment plans has been created, with the aim of making it easier for workers from companies included in sectoral agreements in which this type of plan is agreed, the self-employed, public employees, as well as workers and members of cooperatives and worker-owned companies, to sign up.
Fund managers have been implementing the necessary technology and adapting their products to the new regulatory framework for some time, but they are calling for greater involvement on the part of public administrations so that employment plans can gradually acquire the expected volume.
According to the government's own calculations, the goal is for the publicly promoted employment pension funds to generate assets of €4 billion, a figure that investment firms believe requires greater involvement from the central government itself, either through advertising campaigns, as is the case with traffic matters, or by reactivating contributions to public employee pension plans, which have been frozen since the euro crisis more than a decade ago.
'The government's involvement is essential for Spanish society and, in particular, for young people who are entering the labour market and who will have pensions that are different to those that exist today. The administration has to support by allowing contributions to public employee pension plans, which have been frozen since 2012. The financial crisis is over and now is the time to promote them. This would ensure that these funds would have an immediate and more accelerated development than we can expect if this does not happen', explained José Carlos Vizárraga, CEO of Ibercaja Pensión, firm that believes that pensions are a matter of public interest and should be fostered. 'This mission that fund managers have been engaged in up to now must also be undertaken by the administration, because it is beneficial for society. It is important that young people start saving now for complementary welfare schemes', he stressed.
Robert Roig, Director of Companies and Collectives at VidaCaixa, shared the same opinion. 'We have to see whether contributions to civil servants' schemes will be reactivated, and this greatly conditions the final result. There is a need for an educational effort, which is something that fund managers and depositaries have been engaged in for some time now. Many growth estimates have been put forth, but expectations have to be matched with reality, and all measures associated with the intended boost to complementary welfare schemes must have adequate resources', he stated.
Roig pointed out that fund managers have had to adapt their offer to the requirements of the new products, because it is a question of moving from a profile of large companies to one more focused on SMEs, with a large number of promoters and their own characteristics, which is why he called for complementary welfare schemes for retirement to be included in collective bargaining agreements. '2024 will be a year in which we will see the clarification of many of the uncertainties that we currently face', said the head of VidaCaixa.
For Juan José Cotorruelo, Business Director for Life Insurance and Pensions at Caser, the involvement of social agents, especially trade unions, is essential to carry out and maintain an educational effort among workers so that employment pension plans can gain traction. 'I understand that this has already been internalised, but it is very important for employer associations and the business community in general to be aware that improving the financial health of their employees (via systematic savings) will translate into greater work efficiency and talent retention. That said, the short-term growth of this pillar will come from the self-employed, who can contribute up to a maximum of €5,750 per year', he said. Beyond this educational campaign, fund managers recalled that greater tax incentives for companies are essential if the expansion of employment pension plans is to be accelerated.
Aurora Cuadros, Corporate Director of Securities Services at Cecabank, highlighted the importance of depositaries in providing confidence and transparency to savers regarding compliance of the investment strategy of the pension plans. 'Our role is to support fund managers by providing the necessary technological infrastructure to receive investment information in real time and to offer credibility to unit-holders in the monitoring and supervisory procedures of the fund managers. For us, expertise and knowledge are important, as well as independence in the exercise of our functions as a depositary', she stressed.
One of the difficulties faced by fund managers when it comes to attracting capital with simplified employment pension plans is the wide range of potential customers they are targeting, bearing in mind that there are highly fragmented sectors, such as the construction industry, with thousands of small firms and workers who keep changing subcontractors, but who will want to maintain the same plan. And, at the same time, maintain the long-term investment horizon to ensure that investments are productive.
For José Carlos Vizárraga, the common digital platform can go a long way in reassuring savers. 'It will be a good example of transparency and I do not rule out that in the future something similar will be done to include all types of pension plans because customers do not differentiate between public and private funds', he predicted.
Robert Roig stated that the fifteen employment pension funds with which the system will be launched will cover all needs, although a culture of saving for retirement is necessary. 'It would be necessary to activate a complementary welfare scheme mechanism with compulsory or voluntary contributions, through flexible remuneration, which would generate this habit and not modify the long-term investment strategy', emphasised the head of VidaCaixa, who recalled that in addition to the common platform they are finalising their own application with detailed information for their customers.
Cuadros stressed that this is a task that must involve all the stakeholders, including public institutions, and highlighted the importance of "financial education", particularly when it comes to making savings and investment decisions, and increasing the attractiveness of targeted savings for supplementing income after retirement.
One of the advantages of the new publicly promoted employment pension plans is that they will all be integrated into a single digital platform, which will make comparison easier and more intuitive for savers. However, Robert Roig, Director of Companies and Groups at VidaCaixa, warned that 'we must be agile so that the platform does not become obsolete over time', at a time when the constant technological innovations of applications can encourage or discourage user participation, in this case, of pension plan savers. 'We fund managers have worked to adapt our products from a target of large companies to SMEs, and we are even developing our own applications to facilitate access for savers', stated Roig, who believes that it is important to emphasise the diversification of the plans as well as of other products.
One of the objectives of the new publicly promoted employment pension funds is to attract workers who until now have been left out of the complementary welfare schemes. Hence, the emergence of simplified pension plans, focused on targeting the self-employed and SMEs through sector-specific agreements. However, this represents a challenge for entities in the marketing of very specific products to professionals in sectors that may be highly atomised. 'We should have more clarity in the distribution to customers and know exactly what is meant by distribution and advice', stated José Carlos Vizárraga, CEO of Ibercaja Pensión, who recalled that, although regulations already exist in this regard, in some aspects they do not provide sufficient clarity, taking into account the type of customer they are targeting and the specific product to be marketed.
Caser is the fund manager of the publicly promoted pension plans advised by Indexa, an automated fund manager known for its low fees. However, the firm also offers plans managed by different value style boutiques. For this reason, Juan José Cotorruelo, Business Director for Life Insurance and Pensions at Caser, believes that the two styles cater to different types of investors. 'This is why combining savings between the second and third pillars is essential. The contribution of €1,500, taking into account the average salary in Spain, is still a relevant amount of annual savings as a complement to the public pension if such savings are made on a recurrent basis over most of one's working life. Although contributions to the third pillar have fallen, entities that focus on differentiated management, either through low-cost indexed management or through active value management, can be successful through transfers from other entities'.
When talking about money management for retirement, people always think of pension fund managers. However, depositaries are one of the cornerstones of the system as they are responsible for overseeing the implementation of the investment strategy. Aurora Cuadros, Corporate Director of Securities Services at Cecabank, stressed that 'depositories are one of the pillars of complementary welfare schemes, since depositaries are the custodians of the assets in which pension funds invest, receive the contributions and pay the benefits to beneficiaries, and supervise the activity of the fund managers. This separation of functions provides security and confidence for both the unit-holders and beneficiaries of pension plans. In addition, Cecabank was the highest rated depositary in the bidding process for publicly promoted employment pension funds'.
