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11 August, 2022

Spain: The missing pieces for the future of pensions

Halfway through the pension reform process, there are still some challenges for moving towards a system adapted to the new demographic and economic scenario.

A week after the Senate passed the Occupational Pension Plan Law, the debate regarding the future of the system is more intense than ever. The public pension funds proposed by the Government will serve to boost savings for retirement, despite the fact that the private sector regrets the reduction of tax incentives for individual plans, as pointed out in the last Pensions meeting, jointly organized by EXPANSIÓN and Banco Santander.

Aspects such as skyrocketing inflation, the war in Ukraine and the risk of recession, contribute to an uncertain scenario that affects pensions. “The key to success is public-private collaboration, and all the conditions for a joint effort currently exist,” said Ángel Rivera, the CEO of Commercial Banking at Santander Spain. Hence, he considered it necessary to reach an agreement between the political parties, also including “financial institutions, insurance companies and the private sector.”


Demographic changes and the transformation of the labor market have an inevitable effect on pension systems, according to Nicholas Barr, professor of Public Economics at the London School of Economics (LSE), who reflected on possible solutions and alluded to “Three interesting ideas that have worked in different countries: the option of a basic non-contributory pension, the extension of the retirement age and the need to make savings simpler for the individual.”

Barr extracted some basic lessons for the design of pension systems from success stories such as the British Nest model: “It is important to use automatic enrolment, simplify options and keep administrative costs low, separating accounts management from fund management.”

Regarding the new Occupational Pension Plan Law, he said that “It is an improvement, but we miss some aspects that would have raised its potential, such as a transitional regime for those who do not have an employment plan in their companies, and non-fiscal impulses such as a mandatory automatic enrolment system subject to collective bargaining,” said Ángel Martínez-Aldama, Chairman of Inverco. He also said that “The timing for tax changes in individual plans has not been adequate: one pillar cannot be partially stimulated at the expense of another.”

On the role of behavioral economics in this area, he said that “Pension systems must be simple; for neurological reasons, our brain tends to process savings as if they were a loss. If we want to encourage savings, we must open channels such as automatic enrollment or default options,” said Diego Valero, Chairman of Novaster.

From the standpoint of a company that has had an occupational pension plan for more than 25 years, “We have achieved a sustainable model over time, with very strict risk monitoring. 70% of the investment is destined to fixed income and 30% to equities,” said Jesús Muriel Gómez, Director of Compensation and Organization at Cepsa, who stressed the importance of training.

Regarding the alternatives, “The optimal choice is the life cycle methodology, which assigns the level of risk according to age and ensures automatical adaptment of the portfolio to each moment,” said Miguel Ángel Sánchez Lozano, CEO of Santander Asset Management Spain. At the same time, the sustainability component is increasingly relevant: “It no longer only matters what we do, but how we do things.”

Víctor Matarranz, Santander’s global director of Wealth Management and Insurance, agreed on this point, emphasizing that “Complementary systems play a key role in adapting the pension system to the new social reality.” Finally, Matarranz concluded that “The financial sector has the essential duty of providing products and solutions for savers.”

Source: Expansion


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