The collection of retirement pensions in Spain places practically all its hopes on the public system, which pays Social Security and is nourished by the social contributions of the active population. The other two pillars are collective plans at a business or sector level, and individual plans. These stand out for a development that, in any case, is insufficient to complement the public pension. The most common complementary savings are in individual plans, which currently have more than 84,000 million under their belt. In any case, The average savings per participant barely exceeds 11,500 euros. Translated into the collection of this complementary income once retirement arrives, it would be insufficient to cover even one year of average pension (17,600 euros). The Government wants to promote a change of model towards the second pillar, collective plans, a major challenge this decade.
Complementary social security is conceived as a reinforcement of the public pension that predominates under the current retirement scheme. And the collection of these incomes focuses on the long term, since life expectancy at retirement age foresees just over two decades in which Social Security should be the main income of retirees. With the per capita assets provided by the Inverco Observatory – the association that brings together institutions that are dedicated to collective investment and pension funds -, the life annuity that the accumulated savings would offer would be less than 600 gross euros per year for two decades.
The former Minister of Social Security, José Luis Escrivá, successively lowered the limits of tax deductions from 8,000 to 2,000 euros and, finally, 1,500 euros per year. At the same time, the Government has created new figures to promote savings at the sector level with simplified employment plans or a public fund that has not yet started.
Savings in individual plans are generally greater in those provinces where payrolls are higher and wealth is greater. Navarra is where there is the most savings per capita, exceeding 17,150 euros, while Segovia and Soria are the provinces with the greatest coverage of the population (22.7%), according to the Inverco Observatory. By Autonomous Community, Catalonia and Madrid concentrate almost half of the total assets in this type of plans.
Although individual plans are the largest piggy bank and have 7.3 million participants, the latest legal tweaks are aimed at reducing their tax attractiveness and the capital that can be saved in them, at the same time that they have created new savings formulas collective level in employment plans.
Push towards collective plans
This and any savings formula faces a significant problem that has nothing to do with more or less strict regulations, and is basically low salary levels and practically stagnant remuneration by deflating the evolution of prices since the Great Crisis.
The salary percentage that is ‘set aside’ to complement the future pension in the collective plans is also brief, between 3% and 4% in the best of cases, observing the pioneering construction plan or the data provided by Mercer and KPMG.
The development of the new employment plans has been the first stone to change savings compartments and take advantage of economies of scale to reduce costs and favor the saver. The construction plan, with VidaCaixa as manager, serves as a guide to know that the development of a sectoral plan requires renewing the collective agreement, developing a regulation or choosing, through a competition, the manager and this entails a two to three year job.
The Ministry of Finance headed by Vice President María Jesús Montero maintains paralyzed the macro pension fund for the workers of the General State Administration (AGE), the largest in number of participants and potentially a plan for about 3 million people. Social Security plans to recover this plan to reach 10 million workers covered by employment plans, a major commitment for this decade. Created in 2004 under BBVA management, this savings vehicle complementary to the public pension has not incorporated new contributions from Public Entities for the benefit of workers since 2011, when the crisis forced public spending to be paralyzed.
It is true that employment plans are on track to break the 2004 record, already incorporating almost 600,000 workers into the construction plan, plus some self-employed workers who are joining the sectoral plans of professional associations. But this initial impulse will be slowed once construction manages to add the remaining SMEs and self-employed workers to the plan, taking into account that there are no new sectoral plans in sight in the short term.
The public pension fund, Escrivá’s project for the State to promote pension funds under the management of five private managers with supervision of the Government, employers and unions, is stranded almost ten months later waiting for a technical correction that concerns the remuneration of the members of the Control Commission. It would be a new window to encourage savings for retirement.
The level of savings, whether individual or employment savings, is low compared to the main economies on the planet. “The total assets of the pension funds reached 122,385 million euros at the end of 2023, 8.4% of the national GDPsignificantly lower than the 87.1% average of OECD countries,” explains José Luis Manrique, director of studies at the Observatory. These data “underline the need to promote private savings through these products, as pointed out by the Letta Reports , Noyer or Draghi”.
The OECD pointed out in a private visit to the Ministry of Social Security the need to promote savings in employment plans, as reported by elEconomista.es. For its part, the latest classification of pension systems worldwide prepared by the consulting firm Mercer and the CFA Institute recommends improvements in this aspect.
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