SPAIN – The Spanish government, in desperate need of alternative pension income for workers nearing retirement, is to present its plans to reform the pension system by the end of this summer.

As the Social Security system, which helps pay first-pillar pensions, is expected to report a deficit of 1.4% of GDP this year, the government is currently looking for new options to incentivise Spanish workers to save for their pensions, according to Angel Martinez-Aldama, director of the country's investment and pension fund association (INVERCO).

He told IPE the government was expected to present a report to Parliament some time after this summer that would help define new measures to boost participation in the second pillar.

He said the reform report – originally scheduled for the end of June but delayed to give the government more time to finalise its proposals – would most likely focus on the need to reinforce the second pillar.

"It remains unclear at this stage what the government is cooking up," Martinez-Aldama said.

"The original idea set in the report was to base the second pension pillar on the auto-enrolment system set in the UK.

"Therefore, companies that have not yet established a pension plan for their employees would have been required to do so."

Martinez-Aldama said the notion of making the second pillar compulsory – an idea that appeared in the first draft of the report – seemed to have been dropped from the second draft.

He went on to say that the government would most likely "recommend" that companies set up pension plans for their employees, as opposed to obliging them to do so.

He cited the current economic situation in Spain – where the unemployment rate reached 27.2% in the first quarter, according to official figures – for the government's volte-face.

"Employers have argued that they could not afford setting up company pension plans on behalf of their employees if the economic situation did not recover soon," Martinez-Aldama said.