All citizens want to reach the stage of retirement healthy and in good physical shape, but it is not always considered well in advance if that well-being is also going to be economical. That public pensions will continue to be charged in the coming years is guaranteed, but it is also true that they may be lower. For this reason, it is convenient to have a complement that helps not to lose income and maintain the standard of living after retirement.
The Spain 2050 Plan recently presented by the Executive, and which makes a prospect of how the country can be in three decades, indicates that in that year for every person over 64 there will be only 1.7 people of working age, compared to the current 3.4. For this reason, measures are being proposed to alleviate the effects of having fewer contributors for more and more pensioners and guarantee the sustainability of the public pension system.
With this objective, the Government has opted to enhance the occupational pension plans (PPE). How? The General State Budgets include a modification in the contribution limit annually to these retirement products. If in 2020 a maximum of 8,000 euros per year could be contributed to an individual pension plan, in 2021 this amount is reduced to 2,000 euros. On the other side of the coin are employment plans, in which companies can contribute up to 8,000 euros. Both options can be combined, that is, between the shareholder’s contribution and that of the company, up to a maximum of 10,000 euros could be allocated.
The Spain 2050 Plan recently presented by the Executive indicates that, in that year, for every person over 64 years of age there will be only 1.7 people of working age, compared to the current 3.4
In addition, the Government has also announced the promotion of a Public Fund for Employment Pensions It is proposed to cover especially small and medium-sized companies (SMEs) and the self-employed.
In the opinion of Esther pichardo, Director of Savings and Pensions at BanSabadell Vida y Pensiones, “for the system to be sustainable in the long term, the sum of the benefits that each retiree receives during their retirement stage should be equal to the sum of contributions made to the system, for him and for his company, throughout his working life ”.
More tax advantages for employees and companies
The changes applied represent an advantage that, for the moment, can only be enjoyed by those who work in a company that has established PPE as a savings vehicle for its staff. And, in Spain, these constitute just the 1% of the total. Specifically, only one in six Spanish workers has this type of savings, compared to one in two in Germany or France.
Another fact about the situation: in private plans there are saved just over 84,500 million euros, while in employment there are only 36,200 million euros, according to the Association of Collective Investment Institutions and Pension Funds (Inverco). To finish promoting this savings product in Spain, Inverco has asked the Government to improve tax incentives.
In the same vein, Pichardo pronounces: “We must remember that in Spain it is not mandatory for companies, unlike other countries, to subscribe a PPE for their employees. Furthermore, they do not have any tax advantage or receive incentives to develop these plans ”.
Hence, this impulse will not be effective “if it is not accompanied by other measures such as tax advantages for companies that offer them and the obligation to receive a part of the salary in this type of product by default”, warns the expert from BanSabadell Vida and Pensions, in reference to the characteristics that the new business pension system that is being designed by the Ministry of Inclusion, Social Security and Migration should meet.
How will the Public Pension Fund of Employment?
The Government has committed to having the Public Employment Pension Fund ready before the end of 2021 and has already started working on the details. The main objective of this Fund will be to channel the savings of workers in SMEs and the self-employed.
As highlighted by the Director of Savings and Pensions at BanSabadell Vida y Pensiones, smaller companies represent 46% of Spanish companies and employ 53% of the population. “Our business fabric is based on SMEs and the self-employed, the former have greater difficulties in accessing this type of savings products; the latter are currently disabled ”, he assures.
The purpose is to promote the “automatic assignment” to a PPE “when an employee starts working in a company”, as well as the default link of all PPE to the Public Fund for Employment Pensions, as advanced by the Minister of Inclusion , Social Security and Migrations, José Luis Escrivá. The intention of the Government is “to make it easy so that there is a competitive offer of private, accessible and cheap management”.
The Spain 2050 Plan recently presented by the Executive indicates that in that year for every person over 64 there will be only 1.7 people of working age, compared to the current 3.4.
Esther Pichardo, Director of Savings and Pensions at BanSabadell Vida y Pensiones
Everything indicates that it will be a system based on the automatic enrollment in force in the UK Since 2012. With it, the company is obliged to cover all employees who meet minimum requirements, while the worker can freely resign to be part of this formula, something that does not happen much, since 87% of British employees is covered by this model.
The success of this system is reflected in how contributions have evolved. When it was launched in 2012, the contribution represented 2% of the total salary and, currently, it already represents 8%. The cost is distributed as follows: 3% is borne by the employer; 4%, the employee; and 1%, the State in the form of tax deductions.
“Examples such as the British one further underline the need to promote the second pillar of pensions in Spain, that of private savings through companies, which is so important in many European countries in order to complement the public pension”, it is reaffirmed Pichardo.