Pension funds had their worst year in two decades in 2022, mainly due to the loss of profitability as a result of the falls in the stock markets after the invasion of Ukraine and, to a lesser extent, the reduction in contributions from savers after the latest regulatory changes, which have reduced the attractiveness of this investment.
The annual profitability in 2022 of these plans was negative, 9.7%, an unknown percentage in at least twenty years, according to data presented today by the association of collective investment institutions and pension funds, Inverco. The fall is due to the fact that 40% of the Spanish pension fund savings has been invested in equities, where last year there were strong stock market declines, in some international markets higher than 20%. Another 37% was in fixed income, which has begun to earn interest with the ECB rate hikes.
"The situation has been absolutely anomalous and exceptional" and "we must abstract ourselves and go in the long term, which is how pension funds are," said the president of Inverco, Ángel Martínez-Aldama, in a meeting with journalists to present the data annual. The drop last year has neutralized the returns after the pandemic, of 0.7% in 2021 and 8.5% in 2022, but "in the long term, in 25 years, it already reaches 2.5% per year, with what that exceeds inflation.
The managers that make up Inverco expect profitability to take off this year, among other things because the investment portfolio will be recomposed in search of fixed income, especially public debt. However, the return forecast will not be much higher than 1%. The conclusion of the president of Inverco is that in 2022 "there is not much to celebrate", although the saver must have "patience" and know that the pension fund "is a good long-term investment vehicle".
The assets of pension plans in Spain stood at 115,641 million euros at the end of last year, 12,358 million less than a year earlier, or 9% less. The setback is not only due to the losses in the markets, which took 8,424 million euros, but also because, in net terms, more money has been withdrawn for the first time in at least a decade than has been contributed, with a negative final balance of 666 million euros.
Behind the lower contributions are both the people who rescue the pension plan for retirement and those who stop investing due to regulatory changes. Last year the personal income tax deduction limit for individual plans was lowered to 1,500 euros, while in group plans it was raised to 8,500 euros. The Minister of Social Security, José Luis Escrivá, has launched a law to promote collective pension funds, but a regulation is pending for its approval.
"The objective of the law was very positive, but there have not been sufficient fiscal stimuli. If the question is whether companies have more incentives to now approve collective pension plans, the answer is no," said the president of Inverco.
Of the 115,641 million euros invested by Spanish savers in pension plans, 80,234 million correspond to individual plans, 10% less, while the groups linked to employment systems fell by 8.4%, up to 34,628 million euros . Contributions to both modalities have been reduced by 32% in two years, reaching 4,380 million euros.
The weight of pension funds over GDP in Spain is 10.5%, much lower than the OECD average of 66.9%. In general, the ranking is headed by countries where public pensions have a lower weight and retirement savings are made through private vehicles. In the Netherlands, pension fund assets are equivalent to 209% of GDP, a similar percentage to Iceland. In the United Kingdom it is 117% and in the United States, 98%.
There are countries with consolidated public pension systems where private plans are inferior in relative terms to those of Spain. In Germany, they barely represent 7.8%, compared to 2.7% in France, 4% in Sweden or 2.6% in Luxembourg.
