Domestic concerns predominate
Spain is one of the countries within the European Union that experts believe will be less affected by the introduction of the EU Pensions Directive. Spanish pension fund managers are more worried about the changes that their domestic market is undergoing than the new legal framework for pensions at a European level.
Most of them followed with interest the discussions about the directive but agree when it comes to assessing the impact it will have on their own schemes: very little.
The reasons are obvious and intrinsically linked to the structure of Spanish corporations. First, occupational pension schemes in Spain are still rare, with companies in the banking and utilities sector almost the only ones offering this type of coverage to their employees. Secondly, for those large Spanish companies that do face the challenge of managing pension schemes across countries the directive doesn’t provide a solution. Their subsidiaries are mainly based in Latin American countries and not within the EU.
Talking this into account it’s easy to understand why discussions regarding the new EU legislation among pension managers have not been as intense as those taking place in other European countries.
However, and even though the directive will not change the day-to-day activities of pension plan sponsors, other professional sectors in the pensions industry such as regulators, associations and consultants in Spain are paying a lot of attention to what the final text of the directive says. Many believe the new legislation has already had an impact on the market.
“The government is finalising the process of putting together a draft paper regarding some changes in investment rules for pension plans that will include some aspects that follow what the directive says in this area. So we can say that the new EU legislation has already had an impact on our industry,” says Angel Martinez-Aldama, director of Inverco in Madrid and vice chairman of the European Federation for Retirement Provision (EFRP). “But the real big impact of the directive will be on multinationals with subsidiaries in other EU countries and we don’t have many of those in Spain.
“However, the most positive thing about the directive is that from now own at least we know, at a European level, what we mean by an occupational pension plan and this is very important in Spain where pension funds have had a completely different structure than those in other European countries,” Martinez-Aldama says.
This structure, which centres on the role of the ‘pensions gestoras’, which not only manage pension fund assets but also provide administration services to pension plans, will also be affected by the directive. “When it comes to the outsourcing of asset management now we know which organisations can do this at an European level and this is very important.”
Spain played a very important role during its presidency of the EU last year in reaching an agreement on the final version of the directive, fulfilling its promise to get the directive completed in six months. For a country with a still underdeveloped supplementary pension market, the perseverance of those involved in last year’s discussions attracted media coverage across Europe but very little interest among Spanish pension plans and the general public.
However, government plans to reform the legislation of pension funds aiming to promote the creation of occupational schemes could increase the debate among employers and employees on the need for better pension provision. The new legislation will focus on aspects included in the directive as well as incentives for employers to create new pension schemes. The new framework will especially benefit the SME sector – small and medium-sized companies that represent the vast majority of Spanish industry – by making it easy for them to establish sector or industry-wide pensions funds.
On the other hand, pension gestoras, following what the directive says, will obtain a European passport that will allow them to operate in other countries in the EU. It will make investment limits for pension funds more flexible and improve the quality and frequency of the information that gestoras will have to give to scheme members.
So even though pension plan sponsors don’t expect major changes in the way they operate as a consequence of the introduction of the directive, the truth is that the EU legislation is being used as one of the main pillars in the construction of the future for pension funds in Spain. Its impact on the market will depend on whether the current political will to promote supplementary pensions becomes a reality.
With the externalisation of pension assets already completed, the only hope for growth in the market is the creation of new occupational pension funds, but this is not likely to happen until major reforms of the state pensions system take place. We will have to wait until next year’s general election to see if the new government will have enough courage to undertake this difficult and extremely controversial task.