The performance of Spanish pension plans in the period 2006 to 2010

Abstract

Pension plans and funds represent a substantial part of the welfare systems in both Europe and Spain. One of the most important factors in the choice of a plan or fund is its performance, since if high returns are obtained; the participant will receive higher payments when the contingency covered by the plan or fund occurs. The main objective of this paper is therefore to analyse the performance of individual pension plans. To this end, we apply a multi-index model based on an extension of Jensen’s alpha to a sample of data corresponding to 521 pension plans for the period between January 2006 and December 2010. The results obtained show that the performance of Spanish pension plan managers is, in general, close to zero. This suggests that in the Spanish pension plan market, the value added by active management does not compensate for its associated costs. Our analysis of whether the size and age of the plan might explain performance indicates that both factors are not related to risk-adjusted return. On the other hand, pension plan performance improves slightly when fees are not deducted, and positive risk-adjusted returns are obtained in some cases. Key words: Pension plans, performance, Jensen’s alpha, multi-index model.