As part of a new fiscal plan, the Spanish government has announced modifications that aim to promote the country’s underdeveloped funded pensions system. The new measures, including fiscal reductions for companies and more flexible limits to contributions for pension plans, have been welcomed in the corporate and financial communities.
“The new measures affect pensions both directly and undirectly,” says Ángel Martínez-Aldama, director of research at Spanish association Inverco in Madrid. The new fiscal package includes more flexibility in the limits for contributions to pension plans, eliminating the percentage limitations previously in place but maintaining the quantitative limits of e7,212 per year. For those over 52 there is some relaxation in the quantitative limits per year.
“This is very important for the occupational system, because before this limitation has forced companies to opt for an insurance contract instead a pension fund when externalising the pension reserves of those workers with long services because the contributions they were entitled to exceeded these legal limits,” Martínez-Aldama says.
Another important initiative part of this fiscal reform is an also announced 10% tax reduction on the contributions made by employers into pension plans.
In parallel to these fiscal incentives, there are significant reforms of the law on pension funds that could come into force early this year. These will involve changes to the comisiones de control – the Spanish board of trustees – where until now the majority of the representatives came from the unions. “It is quite logical that those employers offering a defined benefit plan want to have a major representation in the comisiones, and it is also understandable that the unions want to have more control on defined contribution plans,” Martínez-Aldama says. “A consensus between the two should be reached.”
The government is also looking at some changes in the collective agreements between employers and employees to somehow promote the creation of pension funds at a sector level.
All these decisions were made public only a few days after a statement from the government, described as ‘pathetic’ and ‘embarrasing’ by some, regarding the solvency of the social security pension system until 2015. The figures haven’t been manipulated, and it is true that system has enough money to pay pensions until that date, but the government has not explained why this is, at a time when every political effort should be focused on encouraging people to save for pensions and not rely on the social security.
The only reason why these reserves exist is that during the past four years Spain has moved from 8m to 11m workers, meaning that more people are contributing to a system. There are also fewer people going into retirement as Spain approaches the 65th anniversary of the start of the Civil War, during which birth rates dropped by around one third. Employers’ contributions to the social security system have also been increasing during the past few years.
So the government hasn’t lied about the social security system surplus but it has not been honest about the reasons that led to these positive figures.
To be fair, after this announcemen, the government warned about the urgency of taking the necessary steps to deal with future problems. As mentioned above, significant steps have already been taken. The question now is whether people are going to take this warning seriously after having found out about the social security system’s ‘good health’.