A great idea and a lot of loose ends
The participants of the 28th edition of the FundsPeople Legal Debate reflect on the remaining steps to be taken to make Publicly Promoted Employment Pension Funds available and the conditions that need to be in place for them to be successful.
Last July, the Spanish Government completed the implementation of the Publicly Promoted Employment Pension Funds (FPEPP - Fondos de Pensiones de Empleo de Promoción Pública) with the publication of the Pension Plans and Funds Regulation. This regulation triggered a public tender process to become a fund manager or depositary of these products. A process that took place as a matter of urgency before the summer and culminated with eight successful bidders (five fund managers and three depositaries). This issue was the subject of debate at the 28th edition of the FundsPeople Legal Debate.
This Regulation introduced improvements that benefit today's existing pension funds. Elisa Ricón, CEO of Inverco, listed a few, namely, "greater administrative flexibility, new character elements in the field of employment plans to give certain workers such as co-owners, partners in civil partnerships or directors access to these plans, who were previously excluded, or the extension of the investment scheme".
With regard to FPEPPs, now that the regulation has been finalised, its potential remains to be seen. "We are seeing that in the negotiation of new collective bargaining agreements, pension plans are still not being addressed. Hopefully, the government's push to promote them will include incentives because, if not, we will have a great set of regulations and a wonderful platform, but we will have nothing to manage", warned Ricón.
A large part of the problem is cultural. Cristina Esteban, a banking and finance lawyer at Gómez-Acebo & Pombo, pointed out that there is very little education in this regard. "When you are hired by a company, the pension plan should be just another benefit that can be provided to the employee. The FPEPP proposal is all very well, but we need it to have the desired effect", she added.
In this regard, Joaquín Alegre, a director at Andersen, believes that "a pension plan culture has not yet been sufficiently developed, as there is still an underlying idea that they have to be public".
In his view, the aim should be to have a mixed capitalisation system. He believes that "it would be an intermediate solution between a purely public, contributory system, and a 100% private, funded system. This mixed model would need a tremendous pedagogical effort, both at corporate and individual level, to create momentum and collective awareness".
One last issue that should be addressed, according to Ricardo Plasencia, partner at CMS Albiñana & Suárez de Lezo, is that "appropriate taxation should also accompany these plans, as in recent years it has been cut back in the case of individual pension plans". To what Ricón added: "We need not only economic and tax incentives, but also to build a positive public message in favour of complementary social provisions. Much work needs to be done to see it".
GREATER AWARENESS
Other concerns have also been overlooked. José Carlos Sánchez Vizcaíno, Director of Depositary Supervision at Cecabank, warned that it has been a "lost opportunity to restore what we have been losing with regard to the contribution limits for individual pension plans; as well as to give employment pension funds a more decisive boost by recovering them in full rather than partially, as has been the case".
Nor has the step been taken to "benefit the recovery of financial savings with the ultimate aim of complementing retirement by differentiating and reducing the taxation of capital gains", something which, in Sánchez-Vizcaíno's opinion, has been demanded for some time and which would be very positive.
He also noted that "no limitation has been set for the 10-year liquidity scenario, which will be reached in January 2025". A "key" moment, in his opinion, in that "a window is being opened on a date not too far ahead in time from the current economic slowdown, and with a fall in contributions and assets in pension funds. We cannot, therefore, rule out the possibility of seeing significant outflows, to the detriment of the ultimate purpose for which these contributions were made", he warned.
The Government has been inspired by the Voluntary Contribution Pension Schemes model to design the FPEPPs, but the pension savings culture is different in the Basque Country. "In this Autonomous Community it is more deeply rooted than in the rest of Spain, with a savings volume of over 30% of the region's GDP", concluded Sánchez-Vizcaíno.
In the process of getting these FPEPPs up and running, which are expected to be established before the end of the year, one of the most important pending issues is the creation of the Special Control Committee, "which will have to be made up of experts subject to a strict system of incompatibilities", recalled Ricón, who believes that this has been "an architectural project for the country, but once the building has been designed and its construction is underway, now it is time to occupy it with residents".
The most important function of this committee will be "the monitoring and supervision of fund managers and depositaries", explained Sánchez-Vizcaíno. The expert explained that the road to this point "has involved a very significant effort on the part of the entities, both during the training process, and in the emergency tendering procedure with marathon working days, and the difficulty for fund managers of dealing with the contracting platform".
