How the new Government Reform affects the Pension Plans

After the last banking crisis in 2008, led by Subprime Mortgages, Lehman Brothers and other junk assets, confidence in our public pension system is decreasing year after year.

It has been heard for a long time that Spain has a problem with pensions.

You know how this works.

As the saying goes, " when you see your neighbor's beard cut, put yours to soak"

This suggests that future generations will not be able to collect a pension, and in the case of receiving something, it is assumed that the total amount would be residual.

The speech is always the same.

The population is aging, unemployment does not fall enough and those associated with Social Security increase only in summer.

As a result of this scenario, politicians and financial experts invite you to hire a private pension plan to guarantee what the state cannot currently.

What nobody has told you is that the private alternatives they offer you are less profitable than what the government wants to offer you.

The cudgel scam in our retirement

Right now the outlook for our retirement is like the cudgel scam.

If you do not know how it is, I will summarize it for you.

You find a person with apparent mental impairment with a winning ticket.

The ticket offers it to you in exchange for half the money.

In the end you lose the ticket and the money.

Well here we are more or less the same.

If we analyze the pension plans available today, and compare it with other financial assets, the profitability is much higher.

This boils down to the fact that the government has better options to offer, but for that you have to want or know.

The pension plans of the last 15 years have generated less performance than the Spanish stock market or government bonds, as shown in the following table.

Profitability of Financial Assets period 2002-2017

IBEX 35 State bond Pension plans
226% Total 97% Total 60% Total
8.19% per annum 4.61% per annum 3.03% per annum

As can be seen in the table above, if you had listened to the government, your pension plan would have generated almost ⅓ of the profit from investing in IBEX 35.

Because it is recommended to hire an asset with less benefit than another.

If to that you add the yoke of the loss of pensions, the picture is very dark.

The numbers of current pension plans

Currently out of 356 pension funds analyzed, only 4 outperform the IBEX 35.

Of the remaining funds, only 47 exceed government bonds.

The only four funds that have outperformed the ibex 35 belong to Caixabank, Banco de Santander, Santalucía and Bestinver.

In short, a brutal waste of money.

Because pension funds are underperforming

One of the reasons that causes a pension fund to have such a low investment return are commissions.

The commissions made on the funds in the previous period of 15 years, exceed 2% and they put a good bite to the profitability of the product.

The other reason that this product offers this performance is the attitude of the fund managers.

These managers as a rule have little involvement in the assets, which causes a high passive management of the fund.

The managers offer little dynamism in the investment portfolio to benefit from market movements and increase their profit.

To make pension plans a little more attractive, the Council of Ministers has made a modification to lower the fees that apply by law.

Now it would be up to the managers to become more involved in this product and for entities to market pension plans more effectively.

Given the current situation, this reform forces us even more if possible to be more aware of the investment in our future.

Information and financial advice will be essential to guarantee our retirement.

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