Types of pension plans
Pension plans can be qualified according to three criteria :
Pension plans according to promoter
There are three types of pension plans depending on who promotes the plan. The promoter can be any company, company, corporation, union or collective . That is, the promoter is the one who undertakes the creation of the plan and, therefore, should not be confused with the holders or participants of the pension plan, which are the clients that hire said plan.
- Individual pension plans: they are promoted by financial entities and their holders are natural persons. These plans are hired on a personal basis by clients who want to save and invest in their future. In this type of pension plans come, for example, those offered by banks and other financial institutions.
- Employment pension plans: they are promoted by companies or corporations and the owners are their own employees. The contributions to the plan are made by the promoter company itself or by the employee in a personal capacity.
- Associated pension plans: promoted by unions, associations or unions and their holders are their own members or affiliates. Only holders can contribute to the pension plan.
Pension plans according to contributions and benefits
A pension plan is nurtured based on the contributions made by its owners or promoters. Based on these contributions, the owner can expect future benefits. Thus, depending on the type of contributions made and the benefits received by them, three types of pension plans can be found:
- Defined contribution plans: in these pension plans a contribution is fixed that the owner or promoter of the plan will assume on a regular basis. In this type of pension plan no future benefits are stipulated, that is to say, at the time of the rescue of the plan, the owner can expect to recover his invested capital as well as a positive or negative return, which will vary according to the investments that have been made. made the plan. These pension plans are available for the three forms of promoter: individual, employment and associates.
- Defined benefit plan : in these pension plans it is guaranteed that at the time of redemption, the owner will receive their contributed capital as well as a benefit or previously defined profitability. These pension plans are only available in the form of employment and associates.
- Mixed plans: these pension plans combine characteristics of the previous two. On the one hand, a periodic contribution is fixed to which the owner or developer must face; on the other hand, a minimum return or benefit is established, which the plan holder will access at the time of the rescue. These pension plans are only available in the form of employment and associates.
Pension plans according to your investment policy
Depending on the types of assets in which the plan invests, or the composition between different types of assets, we can find the following classification:
- Short-term and long-term fixed income : these pension plans invest capital in fixed-income financial assets, both public (Governments) and private (companies). Fixed-income securities have a lower theoretical risk than other financial products but, in turn, an expected return is also lower. The average duration of the short-term bond portfolio can not be more than two years. (shorter duration implies lower risk) and will be greater than two years in the case of the long-term fixed income category.
- Mixed fixed income : these plans invest in both fixed income and variable income, although to invest in the latter there is a stipulated maximum of capital that can be allocated: 30% of the total plan.
- Equities : these pension plans invest in variable income assets, such as listed shares. These pension plans offer a higher expected return than the fixed income plans, but they are also exposed to a higher risk of losses.
- Mixed equity: these plans combine the investment of capital between equities, to which they allocate between 30 and 75% of the capital of the pension plan, and fixed income.
- Guaranteed : in the guaranteed pension plans it is guaranteed that the owner will recover at the expiration all the initial capital invested, as long as he keeps his money until maturity. These pension plans carry a very low risk, although their profitability is also lower than that of other similar savings products.
It is advisable to contract a type of pension plan or another based on the investor profile that you want to adopt, which will depend, among other factors, on the time remaining until retirement. At your BBVA office, you will be informed about the different options you have for saving for your retirement.