For us, as advisors to our clients, it is essential to carry out a prior study of which pension plans are optimal for our clients. We know that campaigns are a means of recruitment, We don't want a gift to be underneath an inadequate plan for the customer.
Let's remember the goal... Save for retirement!
Pension plans are not only a savings product with a tax benefit (with tax relief on your contributions). It is also a product from which we can obtain a high long-term profitability. In fact, it is the latter that will be of most benefit over time.
We often come across eye-catching campaigns for plan transfers, with very attractive gifts or large cash bonuses. Generally, these promotions require some very high permanence commitments, which oblige the customer to be with an entity up to 5 or 8 years, even!!!
As these are often long-term investments (usually up to retirement), investors lose perspective and place less importance on returns. On the other hand, in other short-term investments such as deposits or mutual funds, we pay much more attention. This is the reason why many fund managers offer significant attraction bonuses, which sometimes hide a very inefficient investment management, together with the highest commissions allowed by law.
A few tips on how to avoid being messed up...
Before taking out a pension plan, our Savings and Investment Department would recommend:
- Knowing where we invest and our risk exposureIt is not the same to invest in a “Plan de Previsión Asegurado” (better known as a PPA) with a fully guaranteed capital, as it is to invest in a Pension Plan with exposure to fixed or variable income.
Unfortunately, it is not uncommon to see very conservative clients with very high risk exposure close to retirement age. - Costs of a pension plan, The differences between different plans may seem small, and between the two “only” add up to 0.25%-0.35%. The differences between the different plans may seem small, and between the two "only" add up to 0.25%-0.35%. But if we extrapolate this to 10-15 years, the differences are very large.
Bank managers tend to have the highest fees, but this does not mean that they are the most efficient. The differences in profitability are significant, compared to other fund managers with lower expenses. - Reviewing returns The aim is to compare them with other fund managers in the same categories (this is known as the «pension plan").«benchmark«). For us this is fundamental, as we can find differences of 4% on average over the last 5 years between mixed fixed income pension plans (less than 30% in equities). If this difference is also found in the largest bank in the country, we can get an idea of the management and expenses of the plan.
Final conclusions on pension schemes
In short, would we be willing to lose 20% of return over 5 years to get a 3% bonus on a transfer?
In the end, this is what it can mean to take advantage of such an eye-catching campaign by the big banks. We should not rely on a percentage bonus without knowing what the plan is underneath the promotion.
Remember that the best return will not come from campaigns and bonuses but from the choice of the plan that suits you best.
Don't hesitate and compare. Come and see us or ask us and we will help you to choose between the best pension plans of insurers, which have leading managers.
