Consultants in Spain have been monitoring the developments affecting Spanish pension funds with great interest. In the mid 1980s there were no more than 10 consultancy firms in the market. Now the figure could be up to 50, and some believe there is still room for more. While most of these firms are small companies offering accountancy and actuarial services, the interest in employee benefits and compensation advice is increasing.
Big international firms, like William M Mercer, Towers Perrin and Watson Wyatt, have seen their Spanish business growing, but in terms of pensions consulting the actual size of the market is limiting further growth. In general, consultants are adapting their strategies to the nature of the Spanish market.
“The development of the pension fund industry in Spain has been slower than in most European countries because of the generosity of the social security,” says Lázaro Villada, head of country at William M Mercer in Madrid. “You can’t say to an employer who has to pay contributions of 30% per employee to the social security that he should also provide them with an additional pension plan. When a system does not work it has to be changed and that’s something that still hasn’t happened in Spain.”
Villada believes that all the changes in legislation have been based on transformations of the current system. “Politicians don’t want to hear anything to do with revolution,” he adds. “They prefer to talk about evolution but this is not working and will not create new pension plans.”
“We are trying to adapt our policies to the Spanish circumstances to be able to enter a market that traditionally has been controlled by the financial institutions,” says Villada. “But the main problem at the moment at the moment is the size of the industry, which without a real regulatory change will continue to be small.”
Manuel Peraita, at independent consultancy firm Peraita y Asociados in Madrid, agrees: “Spain needs changes in legislation and less control from the financial institutions,” he says. “Pension plans are becoming saving plans and this is dangerous. They are following a bit the Latin American model based on systematic savings to obtain a lump sum of capital on retirement, instead of pensions payments, and people do not realise they can actually run out of money.”
Peraita also points out that under the occupational system, the one promoted by the employers, the legislation does not allow them to offer different investment strategies to employees depending on different risk profiles. “Because of this, the gestoras are using very conservative strategies, which is not the best approach for younger workers. I do believe gestoras are taking pensions and insurance contracts seriously and investing the right resources to improve their services, but there is a lack of sophistication in the market.”
Peraita also believes in the need for more professionalism at the comisiónes de control and more transparency and independence regarding statistics of asset management activities.