Mixed reactions have greeted last month's publication in Spain of the long-awaited draft regulations for the externalisation of company pension funds.

Legally, these funds must be in place by May 1999, but Luis Buey Villahoz, director general of BBV Pensiones, the pensions arm of one of Spain's five main banks has questioned the amount of time now available to Spanish companies to implement the difficult change" from book reserve to pension plan provision. "The date for change is too early and we could see chaos as companies try to adapt too quickly," he says.

Angel Martinez, director of research at Inverco, the Spanish pension fund association believes companies are just "thankful" they now have something tangible to prepare for.

The draft sets out the main assumptions to be used in calculating the transition of the 'past service deficit' from a book reserve into a defined benefit (DB) or defined contribution (DC) qualified pension plan (QPP).

For DB plans a maximum interest rate of 4% pa is specified, and for DC schemes a minimum of 4% and a maximum 12% payment pa will be required.

The extra contributions needed to fund the payments can be spread over 15 years in the case of a QPP, which benefits from tax relief for the em-ployer, due to its status as a non-discriminatory fund, with an employee-dominated controlling committee.

Spreading of the deficit is also permitted over a 10 year period under an insurance contract route, which offers no tax advantages but is not subject to the board and fund requirements of a QPP.

An increasing scale of contributions for DB plans for individuals over the age of 52, from the normal level of Pts 1.1m ($7,240) per year up to Pts 2.2m by age 65, is proposed to ensure they incur no loss in benefit.

Furthermore, banks exempted from externalisation under a 1995 law will also now have to fund any new pensions promises under a QPP or insurance contract.

Ian Hinton, senior consultant at Aserplan, Madrid (part of Woodrow Milliman) believes companies are particularly pleased with the flexibility offered by QPP or insurance style payment plans. "Companies can now decide which payment scheme is appropriate for them and put the necessary changes in place. This is being welcomed as they have been waiting for the draft since May 1996."

Ramon Secades, responsible for institutional sales at JP Morgan, Spain, believes the pension fund market now has the potential to flourish.

"Spanish pension fund companies must be allowed to provide a variety of investment profiles for employees, which they currently cannot under law, if they are to take full advantage of the externalisation opportunity though," he says.

Spanish companies and trade unions have around one month to examine and comment on the proposals before legislation is finally implemented in September. Hugh Wheelan"