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 attracting clients, but we do not want a gift to lead to an unsuitable plan for the client.
Let’s remember the goal…to save for retirement!
Pension plans are not only a savings product with a tax benefit (with tax deductions on your contributions). It is also a product from which we can obtain a great long-term profitability. In fact, it is the latter that will bring us the most benefit over time.
We often come across attractive campaigns for the transfer of plans, with very attractive gifts or significant cash bonuses. Generally, these promotions require very high permanence commitments, which oblige the client to stay with an entity for up to 5 or 8 years, even!!!
As they are often long-term investments (usually until retirement), investors lose perspective and give less importance to profitability. On the other hand, in other short-term investments such as deposits or mutual funds, we pay much more attention. This is 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 so that we don’t get messed up…
Before contracting a pension plan, from our Savings and Investment Department, we would recommend:
- Know where we invest and the risk exposure: it is not the same to invest in an “Insured Pension Plan” (better known as PPA) with a fully guaranteed capital, than to invest in a Pension Plan with a fixed income or variable income exposure.
Unfortunately, it is not uncommon to see very conservative clients with a very high risk exposure at an age close to retirement. - Expenses that a pension plan has, both in management fee and depository fee. The differences between different plans may seem small, and that 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.
The management companies of the banks usually have the highest commissions, but this does not mean that they are the most efficient. The differences in profitability are important, with respect to other managers with lower expenses. - Review the returns that a pension plan has had and compare them with other managers in the same categories (known as“benchmark”). For us this is fundamental, since 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 compared with the largest bank in the country, we can get an idea of how the plan is managed and the expenses incurred.
Final conclusions on pension plans
To summarize, would we be willing to lose 20% return over 5 years to get a 3% bonus for a transfer?
In the end, this is what it can mean to take advantage of such a flashy campaign by the big banks. We should not rely on a percentage bonus, without knowing what plan is hidden under the promotion.
Remember that the greatest profitability will not come from campaigns and bonuses but from the choice of the plan that suits us best.
Do not hesitate and compare. Come to us or ask us and we will help you choose among the best pension plans of the insurance companies, which have leading managers.
