Collective plans come to revolutionize the pension system

Fons de pensions

The Minister of Inclusion, Social Security and Migrations, José Luis Escrivá , will revolutionize the panorama for pension plans in Spain. In addition to the pension reform, the Ministry will put a brake on individual pension plans and will give wings to company or collective plans, increasing their deduction margin and creating a plan to strengthen them. This figure is now a minority in Spain, but in neighboring countries they are common and move billions in strategic investments. The UPF Barcelona School of Management professor and director of the International Chair in Sustainable Finance , Marcos Eguiguren , believes that now is a good time to ensure the quality of future investments by these actors.

If the Minister's plan is launched, it means that in a short time there will be large private pension funds with public protection, in the style of France or the Netherlands, which will be large investors.

"The Minister wants to ease the way for the creation of company or group pension funds, which already exist, but they are not very successful due to their legal complexity"

"The Minister wants to ease the way for the creation of company or group pension funds, which already exist, but they are not very successful due to their legal complexity. Now they want to make it universal and also reach SMEs, perhaps organized in associations", says Eguiguren. The Spanish government also wants to extend this opportunity to self-employed workers.

This reform is intended, according to the professor, to change the culture of savings in the country: "We have become accustomed for decades to trust the entire pension to the State." In fact, the replacement rate for pensions (the percentage of a country's public retirement pension compared to the last salary received by an employee) in Spain is 83.4%, one of the most generous in Europe and also one of the most generous in Europe or the Organization for Economic Cooperation and Development (OECD), together with Austria, Italy, Luxembourg, Portugal or Turkey.

"This situation thirty years ago was sustainable, but the population pyramid makes this system unsustainable. The pension system today is a Ponzi scheme," says Eguiguren, who believes that the Government wants to create a system similar to that of countries like the Netherlands or Germany with a superior savings culture. "In thirty years from now, public pensions will be scarcer, but they will be complemented by savings made through this system, dividing the financial responsibility and easing the pressure on the public system," predicts the expert.

The problem pointed out by the teacher is the transition between the current Spanish model and the future. What is clear is that company or group pension funds will be a reality sooner rather than later in the Spanish State.

Pension funds around the world will manage more than $ 56 trillion in assets by 2025

Pension funds around the world will manage more than $ 56 trillion in assets by 2025, according to PwC. Without any doubt they are "systemic investors".

These funds will have a very large size, private management with public criteria and supervision, limited profitability for the manager and a more affordable price for the participant and predetermined investment criteria.

Sustainable investment

In this context, the question that arises is: in what do these pension plans have to invest and what is the role of sustainable finance in this regard?

"The regulation on where these funds will be able to invest will be public and can be put on track in ecological transition projects that the economy needs," proposes Eguiguren. The giant Dutch pension fund ABP has recently announced that it will not invest in fossil fuels and will divest 15,000 million euros in shares of companies in the sector. The Dutch Officials and Teachers Fund will, for example, withdraw its support from Shell.

"There is a great opportunity for the quality of the investments of these pension funds to be a global example"

This is an example of where the investment trends of these pension funds "are accelerating the ecological transition".

The legislative reform of Escrivá to set the investment rates of pension funds is a great opportunity to establish quality standards: "These funds will probably manage hundreds of billions of euros and have the ability to establish standards for promote investments with a high positive environmental and social impact such as renewable energy or social enterprises".

"There is a great opportunity for the quality of the investments of these pension funds to be a global example," concludes Eguiguren.

ODS