Spain faces the challenge of generalizing retirement savings in the face of unstoppable demographic growth. Social Security, although it did not assume in the last reform that the generosity of pensions may be lower in the future and the gap compared to the last salary larger, took an important step so that the public system is reinforced by the second pillar of the employment plans. The former minister of the sector, José Luis Escrivá, tried to resort to automatic enrollment in employment plans (‘auto-enrolment’ in English) that has been so successful in the United Kingdom. This tool has managed to spread savings among more than 80% of British employeesbut it has a difficult legal fit in our country.
Automatic enrollment is a behavioral game that encourages provisional savings. Companies create or are part of an employment plan by legal imperative. Workers automatically become part of a plan. They can choose the fund in which to invest their savings or they become part of a predetermined one. Behavioral economics shows that it is more difficult to take a negative action, in this case going off the plan. In this way, more than 90% of registered workers have remained in the plans since their launch in 2012.
This formula has achieved that more than 22 million workers are part of corporate social security instruments adding those that were already part of plans before 2012. The legal imperative has caused practically all companies to offer these products, explains the Santalucía Institute.
Escrivá launched the law to promote employment plans after significantly reducing the tax incentives for individual plans. The intention is to take advantage of the economy of scale that pension funds can generate at a sector level, including the self-employed and SMEs. All this with a marked objective: 10 to 12 million workers covered by employment plans within five years.
But the intention to force companies to create pension plans and automatically incorporate their workers It is not something easy to imitate in Spain because the company cannot be forced to implement a plan. “Article 41 of the Spanish Constitution, which is what provides for a public Social Security system, has a final paragraph in which it is said that complementary benefits will be free,” explains Mercer’s lawyer and member of Ocopen, Antonio Méndez. Baiges.
Manuel Álvarez, honorary collaborator of the pension consultants, explains that the possibility of forcing all companies to set up an employment plan by legal imperative that was intended in principle “has a constitutional fit” because the Constitution establishes the “preeminence of social agents”. “An obligation imposed by Law could be considered to interfere with agreements between workers’ unions and business associations. Consequently, it would have a legal risk of being unconstitutional,” says Álvarez.
These plans come with a series of costs and benefits. The simplified ones, which are focused on the development of sectoral plans, depend on collective bargaining for the development of matters as basic as contributions to the fund. The construction plan was the first to be launched. It started in February after an agreement between the employers and the unions, with the management of VidaCaixa. Now, sectors such as metal, department stores or chemicals are looking for a way to have their own vehicles and offer a complement to their workers.
Movements in other European countries
The European environment is moving with the retirement of the next generations in mind. The German Government wants to create a macro fund to invest in the markets and generate returns. The Labor Government, in turn, announced last summer the intention to unlock investment in the employment plans of public workers, with the potential to mobilize 430 billion euros. Along with this, the employment plans to which companies and workers in the private sector contribute will complete the quota until managing 950,000 million in assets this decade.
Labor’s intention is to unify funds or at least get that these have a minimum size to take full advantage of the potential of economies of scale.
The Spanish Government keeps the publicly promoted and privately managed pension fund paralyzed due to legal requirements that it has not yet managed to satisfy. This project promoted by Escrivá was called to be a driver of savings in the form of a macro fund.
In parallel, the Executive maintains a conservative position when investing the money held by the Reserve Fund, the famous pension piggy bank. The budget blockade keeps public worker plans in dry dock since the cuts caused by the previous financial crisis.
The example is set by countries like Norway, Ontario teachers or the Dutch pension fund. All of them work with enormous assets that allow them to diversify their investment in different sectors throughout the world.
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