Spain’s retail structured products market is gearing up to embrace “Plan de Ahorro 5”, a new financial product inspired by the tax reforms introduced by the government in June 2014.
Banks and insurance companies are finalising plans to adopt the new savings scheme that can be wrapped as a deposit or an insurance product, and can be linked to any financial asset including derivatives.
Structured products will benefit from the opportunity that ‘Plan Ahorro 5’ will provide following the tax reform, according to David Glaria, director of structured products distribution at CaixaBank. “We think [structured products] will be the ideal instrument/vehicle to meet the requirements established by the regulator,” said Glaria.
The annual investment in the product is limited to €5000 per person and yields will be exempt from taxation if the investment is kept for at least five years. Additionally, if the investor redeems the product before the maturity date, any yield generated up until that date will be taxed at the general rate applicable to saving products of between 19% and 23%.
The fact that the regulator has set the investment at €5,000 is symptomatic of the aim of the regulator to bring these tax efficient products closer to retail investors, said Glaria.
“It’s a good idea that the products can be distributed by life insurance companies via long-term individual savings insurance (seguro individual de ahorro a largo plazo - SIALP), as well as a traditional savings account (cuenta Individual de ahorro a largo plazo – CIALP),” he said. “The five-year term, which is shorter than the average term of other tax efficient products, is also an appealing element for retail investors.”
Another characteristic of the ‘Plan de Ahorro 5’ is that investors can place €5,000 per year for each of the five years during the product term, which would bring the total investment to €25,000. As a result these products are suitable for conservative investors although since the product allows the combination of fixed and variable incomes it may also appeal sophisticated investors.
Providers must ensure that up to 85% of the capital invested is protected and returned at maturity, with investors being exposed to a maximum loss of 15% of the capital invested.
“The minimum capital protection of 85% at maturity is not a disadvantage or a weakness of the product but the opposite, as it will allow providers to offer more efficient and flexible products with higher potential yields compared with 100% protected products (PPAS),” said Glaria. “This difference is accentuated even more in a low interest rates environment.”
Glaria also said that there is little doubt that ‘Plan de Ahorro 5’ will strengthten the position of structured products allowing investors to access an efficient and varied product range as well as providing market players more flexibility in the use of payoff types and underlying assets.
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