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What is a pension fund?

A pension fund is a financial instrument created to administer the various monetary flows generated by pension plans. A pension fund can be understood as another component of an investment fund which simultaneously fulfils the function of channelling the monetary rights and obligations established by the plans it comprises.

Pension funds are usually administered by a manager, while their securities are safeguarded by a depository and supervised by a control committee. In Spain, the body that supervises pension plans is the General Directorate of Insurance and Pension Funds (DGSFP), which depends on the Secretary of State for the Economy and Business Support, in turn dependent on the Ministry of Economic Affairs and Digital Transformation.

Pension funds are fed by the money that pension plan customers contribute every month, and that money is constantly invested. Pension funds invest in different products such as stocks and bonds, for example, and seek to maximise the return on those investments.

What are the features of pension funds?

Pension funds have a series of features, some of which are the same as traditional investment funds.

  • As with investment funds, there is no legal entity behind them.
  • They are administered and distributed by a manager.
  • The securities in which they invested are safeguarded by a depository.
  • An investment fund can be created for the sole purpose of servicing a specific pension plan.
  • A pension fund can manage money from several pension plans.
  • A pension fund can manage money from several pension plans.

Main differences between a pension plan and a pension fund

They might sound very similar, but pension plans and investment funds are totally different concepts. The main differences are as follows:

  • A pension plan is a financial product that a customer takes out and pays into on a regular basis with the aim of obtaining extra retirement income in the future.
  • An investment fund is a financial vehicle that invests customers' savings or regular contributions in another type of produce with the aim of generating a return.

Let's compare a pension plan with a pension fund: Juan decides to take out a pension plan with a reputable company and sets up monthly contributions of 150 euros. Those 150 euros are added to the pension fund, which then administers them and invests them in other products to generate a rate of return.


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