The fine print of pension planes that give away cash

The pension plan campaign is almost as traditional as that of the Christmas Lottery. Between October and December, financial institutions launch their offers to capture the money from pension planes with transfer bonuses.

For several years now, cash has become the main attraction compared to traditional gifts. Promotions for changing the bank pension plan exceed 4% and reach 7% of the transferred amount with a maximum of 60,000 euros.

The highest request is for Ibercaja, which gives away 7% of the money transferred. Behind them are 6% from Banco Sabadell and Banco Santander and the 5% offered by Bankinter. From there, this gift moves between 4.5% and 4% offered by the rest of the big banks. These are attractive returns, although before accepting them you must be very clear about the fine print included in the offer and correspondence. And in most cases there are limitations and requirements that must be met.

Pension plans that include a retention period

All aircraft transfer offers will hit the bank for more than a year. It is the way that entities have to prevent customers from changing banks in search of the best compensation, exactly the same as telecommunications companies do with their promotions.

During that time you will not be able to move your pension plan to another entity nor will you be free to change plans even within the same bank. If there is, the most normal thing is that there will be a penalty.

These periods range from three years to the 10 years that Ibercaja requests for the maximum compensation of 7%. For example, with Caixabank and Banco Santander this permanence is 8 years. This is how the entity avoids leaks and recovers a part of that investment in attracting clients via commissions.

The pension plans to be contracted are limited

Pension plan campaigns are in many cases not open to all the entity’s products. “The planes that can be hired are limited to those that are part of the promotion and may not be the best in the bank, although they may be the most expensive,” says Luis Pita, CEO of Preahorro.com.

In fact, it is common for these to be newly launched aircraft that need to gain capital volume.

A recent study by robo-advisor Finizens analyzes the opportunity cost of investing in these plans versus doing so in indexed pension plans that have lower commissions.

“Analyzing all the pension plans subject to the bonus promotion offered by the 3 big banks, almost 80% of them charge the maximum commission allowed by law,” explains Kevin Koh Maier, Investment Director at Finizens and author of the study.

Added to this is that the profitability of these aircraft may not be the best. The average 15-year profitability of the mixed pension plans of the three large banks (Caixabank, BBVA and Banco Santander) is 35.5%, which translates into a net annual return of 2%.

They require a minimum transfer and contributions to the pension plan

Bonuses are also not universal across all offers. Entities such as Banco Santander or Bankinter link this compensation to the amount of capital they transfer.

With the first you have to contribute more than 100,000 euros to obtain a 6% compensation and with the second you have to reach 60,000 euros for the 5% compensation.

In other cases, such as Banco Sabadell, the allocation depends on the number of years of tenure.

Added to this is the obligation to make periodic contributions during the years that the plan is in the entity, normally at a rate of 100 euros per month to approach the maximum that can be contributed to the pension plan.

Pension plane correspondence is also taxed

The money you will receive for changing your pension plan bank will be added to your income tax return, where it will be taxed as a return on capital. For practical purposes, this means that between 19% and 28% will have to be subtracted from the money received depending on the rest of the investments.

In any case, the entity will apply a withholding of 19% on personal income tax.

In the end, it is important to know these limitations so that the application does not end up becoming a ‘poisoned gift’.

“The pension plans offered by banks tend to be unprofitable, in addition to having unjustifiably high commissions, reflected in the poor results obtained by savers. We encourage all savers to understand the profitability and costs of their pension plans and not to fall for in the temptation to accept bonuses. The proper selection of a product that accepts bonuses is much more important,” summarizes Koh Maier.