Unless you want to report to a committee made up of your company’s management and unions, you’d probably prefer to save for retirement using mutual funds.
The government has decided to discourage hiring private pension plans and encourage public and company plans. In the first option, it would be the administration who would decide who manages the money for your retirement. It is an option that we advise against from the outset. If the politicians have not been able to fulfill the contract to adequately manage our public pension in accordance with the agreement, and now we will have to work more or receive less, are we going to entrust them with that too? It doesn’t seem like a good idea.
In addition, from what is known about the new law, these state plans will be managed by the large Spanish banks, which they already did, with which the great contribution of the new legislation would be to include the State in the equation. We don’t think that contributes much, really. It could even generate a serious conflict of interest due to issues of political favoritism.
Ruled out that the Ministry of Labor and/or Social Security decide how our savings are managed, we are left with two options: private investment funds or company pension plans.
Historically, investment funds have always done much better than pension plans, managed until now by the large national financial institutions. And this is a fact, not an opinion. In addition, and thanks to the fact that investment funds in Spain have good tax treatment, we have here from the most important managers in the world to the highest level “boutiques”, with which the investment offer is very complete. Now even more, thanks to the arrival of ETFs.
In addition, it is much more dynamic – changing pension funds can take weeks -, cheaper and, very important: there is the possibility of having independent advice when making investment decisions. It is not the same to go directly to a bank, where they will place the “house” plan that they are selling, than to work with an independent adviser who recommends the best funds on the market, depending on the expectations of the evolution of different financial assets.
In the case of company plans, decisions are made by a committee made up of company management and the union. With all due respect: someone can be a great manager in his field and not know the financial sector at all. And the specialty of the syndicates is not the selection of managers.
In fact, in the United States or the United Kingdom, these committees are required to hire a certified independent financial advisory firm to advise the committee objectively and free of conflicts of interest. And they do it not only to safeguard the quality of the decisions, but also to prevent those who make them from doing so based on gifts or incentives from those who want to take the juicy cake.
In my opinion, the best solution for the money you want to save for retirement would be the American one, which encourages saving of all kinds as long as you are committed to it in the long term. The Spanish approach would have discouraged an individual from investing in Apple or Microsoft on their own for retirement. Or that he take, because they have advised him that way, the decision to invest more in North American variable income funds than Spanish, a decision that in the last 10 years has meant a difference of more than 200% in profitability.
Why isn’t this done here? Many answers occur to me and they all have to do with the conflict of interest that is created when what interests the saver does not coincide with what interests the State or the country’s large financial institutions. If the objectives were profitability and excellence – there is no conflict of interest with the saver – we would have already adopted the Anglo-Saxon model, whose results are more than proven.
My advice?: use investment funds and get advice – or have them managed – by someone you trust whose only interest is that you earn money. Certainly taxation is the incentive that the government will use for its proposal, but the most important thing when you retire will be the profitability obtained.
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