At the end of February the Spanish government published a new decree, or Reglamento, modifying the existing one, for the application of the new law passed at the end of 2000 to stimulate the development of Spain’s flagging second-pillar pension system.
The second-pillar system was introduced in Spain in 1987 but by the end of 2003 had attracted fewer than 700,000 members.
The overriding aim of the new decree is to bring the second pillar system into line with the EU pensions directive, in respect of investment rules. Asset classification is one aspect, for example the minimum threshold for investments in listed instruments has been reduced from 75% to 70%.
The new decree also makes it possible to invest 100% of a pension fund in at least ten investment funds (up to 10% with any given fund manager); the ceiling had previously been set at 5% of total investments.
Another requirement is that funds be subject to an independent audit. “This adapts the Spanish rules to the EU directive pension funds in terms of corporate governance and transparency,” says Diego Valero, president of Ocopen, the association of pension fund consultants. The task of the audit will be to assess the fund from a financial perspective; to date funds had been examined from a purely actuarial standpoint.
“The audit will examine how the portfolio is constructed and whether it is suitable for the plan in question based on the principles of asset liability management,” says Valero. The audit should check for conflicts of interest and directs trustees, or Comision de Control, to set out investment principles. It must take place at least every year.
The new decree has also opened funds to international managers. Up to now the law has not been flexible in this regard, which is why only two or three plans in Spain have arrived at agreements with international managers. Administration, ie, the management of contributions and payouts, must still be carried out by a Spanish manager.
Another product of the amendment is the introduction of performance-related fees into second-pillar schemes. Until now fund managers, or Gestora, could only charge flat rate management fees, but clients can now demand that fees are linked to the performance of their fund. Gestora can charge performance-related commission of up to 2%.
In terms of the proportion of worker and employer representation in the board of trustees of each fund, the amendment has been controversial. The decree has compromised in favour of employees and unions. “The compromise means that although equal representation should be the general rule, an existing pension scheme will remain with a majority of worker representatives in its board of trustees if this is agreed by collective agreement before the end of this year.” says Angel Martinez-Aldama, director of Inverco, the Spanish investment and pension funds association.
The new ruling also separates second and third pillar schemes in that it is no longer possible to have the two types of scheme in the same fund. “This is very good news because the objective of the company plan can differ greatly from that of an individual plan,” says Rafel Martinez of consultants Mercer. “For example, there can be differing ages and thus different levels of risk aversion.”
Hitherto small and medium sized companies have been deterred by the complexity and cost of setting up
corporate schemes. The new decree
introduces ‘Planes de promoción conjunta’ which allows the creation of pension schemes for sectors which each company in a given sector can join at less cost and with less administration than would be required if creating its own individual scheme. “Almost none of these companies have a corporate scheme, and this is why only 1,600 company pension plans have been established to date in Spain,” says Martinez.
But it seems that there are also points which the amendment has failed to address. For example, it is not possible to have more than one investment policy per second-pillar scheme. This limits the ability of a scheme to cater for the differing risk tolerance of older and younger members.
“There is an internal conflict and the new reglamento has not addressed this,” says Juan Costales, head of investment at Caser.

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