Reduced fees for pension plans

The Government has reduced their cost and made fund redemption easier

Faced with the uncertainty that surrounds the public system for assuring people's retirement in the future, pension plans have become one of the most profitable financial products available, as well as one of the most popular among users. After years of work and effort throughout our working life, it is essential to have the security that in the future everything will be under control, which is why investment in savings products continues to grow. And they promise to grow even more with the reduction in fees for pension plans, a measure implemented by the Government to encourage people to sign up for such plans.

The Executive body has prepared a series of measures that will be approved shortly and through which the cost of pension plan fees will be reduced, as well as making the withdrawal of funds more flexible. Through a Royal Decree, the maximum management fee will fall from 1.5% to 1.25%, the second reduction in a three-year period, as the cost of this fee was reduced previously in 2014 when the maximum management fee was reduced from 2% to 1.5%.

Moreover, a reduction in the percentage corresponding to the depository service fee will also be approved, falling from 0.25% to 0.20%. In 2014, this maximum fee was reduced from 0.5% to 0.25%.

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The reduction of both maximum fees will apply to all existing pension plans and to any that are set up in the future and that exceed these maximum limits.

This package of measures will be completed with measures to make pension plans more flexible, giving them more liquidity. This means that from 2025 it will be possible to withdraw funds held in a plan up to the amount corresponding to the contributions made at least ten years earlier, with no limit. Currently, there is a limit of €10,000.

Fewer fees, more possibilities

The series of measures adopted will increase the profitability of pension plans as a result of the lower fees. It should be taken into account that, as they are long-term savings products, this new regulation will represent a considerable reduction.

Pension plan fees are charged implicitly, that is, in the daily net asset value that is published and from which the corresponding daily fee is already deducted. Therefore, the lower the fees, the higher the yield for the member when the time comes to draw down on their funds.

Similarly, flexibility in the withdrawal of the funds will also increase their yield as a result of greater liquidity. The fact that the €10,000 limit for the withdrawal of contributions made at least ten years ago is removed also opens up new opportunities for getting more out of this product. It means that funds will be able to be withdrawn with greater freedom, as members will be able to access that money whenever it is best for them (without the need to prove the occurrence of an exceptional situation that allows for the funds to be withdrawn) and without having to be for a specific amount.

How do pension plan fees work?

To better understand the importance of these measures, it's useful to analyze exactly how these fees work. In this respect, we have to take into account that the banking institution holds its customers' pension plans, also managing the investment of the funds in order to ensure they are profitable and generate benefits.

These two actions entail expenses that are charged to the user in the form of fees, although this does not mean that the holder of the plan has to pay any extra amount, but rather that this amount is discounted directly from the plan's assets.

  • Management fee: this is the amount that is paid to the management company for the work it performs. That is, for investing the funds paid in to generate a return and enable profits to be made. The management company, which is not always the same as the banking institution, does not receive a fixed amount as payment, but rather a set percentage. With the new regulation, this percentage will not be able to exceed 1.25%.
  • Deposit fee: it consists in the quantity that the depositary entity charges the pension plan holder to be the custodian of the securities. The maximum percentage under the new measures will be 0.20%.
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The benefits of a pension plan

This new regulations will improve pension plans' potential profitability even more. However, this will not be the only benefit, since this financial product has other favorable points which you should not ignore:

  • You don't need to be an economics expert: the investor only has to choose the plan and doesn't have to worry about anything else. It is the management company that will see to investing the funds to achieve a return.
  • Multitude of options: there is a wide range of different options when it comes to signing up for a pension plan. It will depend above all on the extent of the investor's desire to assume risk, but in any case they will be able to find the plan that suits them the best.
  • Flexibility in the contributions: unlike in other types of financial products, in the case of pension plans it is not necessary to contribute a fixed amount. The holder of the plan can make contributions whenever it suits them (periodically or through one-off payments) with no obligation of any kind, and several years may even pass between one contribution and the next.
  • Tax savings: this is one of the most important benefits. The contributions that are made to the plan can be deducted when making your annual tax return, reducing your taxable income base for Personal Income Tax purposes and thus providing a significant tax saving. Furthermore, it is possible to change pension plans with complete freedom and without paying any taxes. In fact, it is recommended to have several plans simultaneously to diversify the risk.
  • Available when you need it the most: although a pension plan is intended to be drawn down on when you reach retirement, it is possible to withdraw the funds in advance in the following scenarios: the account holder's inability to work, serious illness, situation of dependence, death of the account holder, long-term unemployment or after the plan has been maintained for ten years (counted from 1 January 2015).

The plan you're looking for, at BBVA

If you are thinking about taking advantage of this new regulation and the benefits a pension plan can provide, have a look at all the options BBVA has to offer. Visit bbva.es and check which plan is best for you, based on their conditions and your own financial circumstances.

To this end, you can use the pension plan calculator that you will find at bbva.es. By entering your age, your annual salary, the number of years you have been making Social Security contributions and the accumulated balance you have in any other pension plans, you will discover the ideal plan for you.

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