What fees exist for pension plans?

All the pension plans include a management fee and a deposit

A pension plan is a financial product designed to help you save for your retirement, acting as a supplement to your public pension benefits. In Spain we are currently immersed in a debate about the sustainability of our public pension system, and this has been reflected in the most recent reform efforts that have included introduction of the sustainability factor and the pension revaluation index. Furthermore, given the existing demographic projections it is very likely that there will be an impact on the sufficiency of Spain's public pension funds.

Given this scenario, pension plans are now the main retirement savings product being offered, and by their nature they are intended as a long-term savings product. When deciding on whether to invest in a pension plan, the tax relief offered during the contributor's active income phase often play a fundamental role, since the contributions made into the plan can be deducted from the Personal Income Tax (IRPF in Spanish) assessment base, which in turn lowers the amount owed with the annual tax return. However, before deciding which plan to buy, you must first evaluate certain characteristics of the plans, such as their risk profile, recommended term, and of course, the associated costs.

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Management and depository fees for pension plans

The first key aspect to understand about the fees charged with pension plans is that they are associated with the services provided by management entities and depositories. The primary mission of the management entity is to administer the capital held in the pension funds, while the depository is responsible for custody of the financial assets. However, the management entity performs other functions as well, such as maintaining the accounting records for the fund, calculating current balances for the plans in the fund, issuing reports for participants and beneficiaries, managing contribution and benefit payments, and overseeing the depository, among others.

The tasks performed by the depository institution, on the other hand, include work on monitoring the management entity, handling payments made and received, executing buy-sell transactions for securities, issuing membership certificates, etc. This is why both the management entity and the depository receive compensation, in the form of the management and depository fees charged with pension plans. It is important to emphasize that these fees do not require any additional payments to be made by the participants and beneficiaries, since the amounts due are automatically deducted from the value of the consolidated and economic rights of the participants and beneficiaries, respectively. These fees tend to be expressed as a percentage of the capital held in the Pension Plan, and they have upper limits that are established by law. The fee established by legislation is 0.20% for the deposit fee and an average of 1.25% for the management fee. The management fee is determined by the type of product. The maximum fee for fixed-income products is 0.85%. For mixed income products the maximum fee is 1.30% and for equities the fee is 1.50%. 

To show how these fees are applied and to clear up any doubts, have a look at this example. Imagine you have invested €40,000 in a pension plan and you pay the average management fee of 1.25%. Your fee payments would cost €500 a year, irrespective of how the funds in the plan perform.

The depository fee may be up to 0.20% so, going back to the previous example, another €80 would be required to cover this amount each year. By law, the maximum fees are 1.50% and 0.20%. However, banks can set the fees they deem appropriate within these caps. Typically the fee will vary depending upon a fund's investment policy, as well as upon its management style, which may be either passive or active.

Fixed-income funds usually charge lower fees than variable-income funds, and lower fees are also charged for passive management compared to active management.

Application of fees and their effects for the pension plan account holder

As well as understanding these two different fees, it is important to know how they are charged. The maximum percentage of 1.70% is applied to all the invested funds and not to the profits generated. This means that regardless of whether the pension plan gains or loses value, the management entity and depository charge the same amount.

The way that pension plan fees are applied also produces another effect that has direct repercussions for the account holder. As the amount of capital in the plan increases, the amount that must be paid in fees does as well. This is because in practical terms, managing a €20,000 fund is not the same as managing a €200,000 fund. The more money existing in the fund, the more complicated the management becomes.

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Fees for BBVA Pension Plans

BBVA is aware of the increasing importance of pension plans, as a supplement to the state retirement pension and to maintain the lifestyle enjoyed during a person's working life. This is why we offer a broad catalog of pension plans, organized by the age of the investor and, therefore, by the time remaining until retirement: under age 50, age 50-60, over age 60, and already retired.

BBVA customers can decide whether to adopt a conservative, moderate, or resolute investor profile. The fees that must be paid will vary depending upon this decision, generally becoming higher as risk increases and management of the plan becomes more difficult.

Since a pension plan is a long-term product, even minor variations in the fees to be paid will end up having an impact on the account holder's wallet. You can use the BBVA pension plan simulator to calculate the amount of your public pension and help you select a pension plan, after considering which of the plans being offered will provide the best guarantee that you will be able to maintain your current lifestyle.

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