The latest reform of the Pension Plans and Funds Regulation added a new exceptional liquidity scenario. We are talking about the possibility of redeeming contributions to pension plans with a minimum life of 10 years. A measure that came into force on 1 January 2015, which is when the calculation of this period commenced. Therefore, the first redemptions under this new situation can begin to materialise as of 1 January 2025.
The problem is that when this legislation was enacted, no annual limit was placed on such redemptions and the sector fears that massive redemptions could take place. José Carlos Sánchez-Vizcaíno, Director of Depositary Supervision at Cecabank, believes that when this day arrives it will be "a key moment, as we open a window of liquidity 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". In his opinion, "we cannot, therefore, rule out the possibility that we may see significant outflows, to the detriment of the ultimate purpose for which these contributions were made".
José Antonio Herce, Chairman of the Experts Forum of the BBVA Pension Institute, is of the same opinion and warns: "A potentially devastating prospect for Spain's meagre pension savings is looming, unless pension plan commitments expressly prevent it (the rule respects this) or the good sense of savers prevents it".
Ángel Martínez Aldama, Chairman of Inverco, quantifies that "approximately €64,000 million could be redeemed, which is half of the assets under management, if redemption limits are not established for 2025 to prevent contributions that are 10 years old from being redeemed", he warned this week during the 23rd National Conference on Collective Investment held by APD, Deloitte and Inverco in Madrid. In recent years, "contributions to the employment system have been zero. I think we need to reflect and put forward new proposals", he added.
Learning from experience
Spain is not the first country to approve this measure. In April 2015, availability of full liquidity was introduced in Pension Funds in the United Kingdom. Since then, and up until 2018, around 72% of stakeholders had drawn down their consolidated rights early, most of them in the form of a lump sum; 90% of them had less than £30,000 saved and 60% had less than £10,000, according to data from the Financial Conduct Authority (FCA) in the Retirement Outcomes Review Report.
With respect to the above, Juan José Cotoruelo, Director of Life and Pensions at Caser, commented that "those who accessed liquidity in the United Kingdom were those who had the fewest consolidated rights and this has a negative impact on people with the least purchasing power and, therefore, who had the least savings to date", he stressed a few days ago. In contrast, the expert continued, "in the Basque Country with the Voluntary Contribution Pension Schemes, no large redemptions were seen when redemptions were allowed". In the case of Basque pension plans, contributions can be drawn 10 years after the first contribution to any Voluntary Contribution Pension Scheme.
Significant weight in the debt market
This is compounded by another consequence. Specifically, the high weighting that this type of vehicle tends to have in fixed income. Joaquín Alegre, director at Andersen, recalls that "pension funds are key players on the investment side of the fixed income market". Therefore, in his view, "they can create dynamics in the markets at a time when fixed income is very attractive, driven by rising interest rates and increased supply as issuers seek alternative sources of funding".
Recently, the rating agency Moody's asked Spain to make further adjustments to its pension system to avoid a deterioration of its credit rating. "Clearly, the reforms that improve a country's credit rating are not those that move in the direction of paying more benefits, but less. Therefore, retirement savings should be encouraged, because boosting the complementary system also strengthens Spain's capacity to address the challenge of an ageing population", stressed Elisa Ricón, CEO of Inverco.
