As we mentioned in a previous post, supplementing our public retirement pension is going to be essential if we want to maintain our standard of living, especially for those under 50 years of age.
For this reason, today we want to explain to you what are the main mistakes we make when subscribing to a pension plan and what criteria to follow when contracting it. This will determine whether we have more or less balance in the plan when the time comes for us to retire.
Why don’t we compare our pension plan?
Recently, we were fortunate enough to attend a very interesting presentation on savings and pension plans, in which the following was made clear: the average Spaniard does not compare his pension plan and relies solely on what his bank manager tells him.
The usual “modus operandi” would be: the time comes for the income tax return and we see how we pay a lot of taxes; in the next visit to the bank we are offered a pension plan, which is the savings product that allows tax deductions and, without even knowing the type of plan we are entering (it can be fixed income, mixed or even variable; that is, we can lose money), we agree because it allows us to save money in taxes for the next year.
The big mistake: looking only at the volume of a plan
In general, it could be said that pension plans with the highest number of adhering investors do not have the best returns. Here is the data to support this (mid-2016 data):
- No. 1 pension plan in Spain by number of participants: My Santander Prudent Plan (more than 220,000 at the end of 2015). It has the maximum commissions allowed (1.5% annual management fee and 0.25% depository fee), and its ranking in Inverco places it at No. 193 out of 220 plans in its category (mixed fixed income). In addition, this year 2016 it is losing close to 3% up to April.
- No. 1 pension plan in Spain by number of participants in variable income: BS Plan Renta Variable, of Banco Sabadell (more than 50,000 participants in Spain). Something similar happens with Santander: Inverco places it among the worst, specifically among the 10% with the worst profitability in its category. Its profitability is negative for both 10 and 15 years.
- The No. 1 pension plan in Spain by volume of money under management: PlanCaixa Equilibrio, of La Caixa (some 3,200 million euros), which has had a return over the last 10 years of less than 1% per annum (specifically, 0.89%), i.e., well below the average of the plans. And, worst of all, it is negative in the accumulated over the last 15 years.
And these are just a few examples…
Our advice for improving our choice of pension plan
If the pension plans with the worst results are those with the most money accumulated and the largest number of participants, it means that the people who have invested there have not looked at the returns obtained, nor have they compared with other options that are more favorable to their interests.
Therefore, we reiterate the need for correct and adequate advice, in order not to make the wrong choice. At the same time, we need to be advised when it is convenient to change to a better plan.
There are 10 million Spanish people who save or invest in a pension plan, most of them should get information or advice, and compare pension plans from different entities, taking into consideration
- The risk I want to assume is the first thing we must know: no one should advise us to invest our money in equities (neither the person at the bank, nor a friend, nor my manager). The reason is very simple: we must know the risks we are taking when we do so, and be able to opt for another more conservative plan if we do not want to take the risk.
- Once we have option one: compare plans from different entities; and what should we look at?
– The historical performance of the plan, especially when compared to the benchmark (the average performance of the pension plans in its category).
– Pension plan expenses: although important, they are not fundamental, since we all understand that if we want the best manager deciding the investments of my money, we understand that he will charge more than a “mediocre” one. As long as he/she is well positioned in the benchmark.
If you need help with your pension plan, both to choose the right one for your profile and to find out the tax implications, our Savings and Investment Department will help you. Call us or consult our options to save and improve your pension.
