Spanish trade unions and the employers’ organisation CEOE have shown the government their concern about being able to meet the deadline of December 31 for companies to switch their pension fund reserves into funded retirement plans.
The law, which requires companies to externalise their pension commitments with their employees through a pension plan or a collective insurance contract, came into force in November last year. Since then, negotiations within the companies have been difficult and in many cases unsuccessful.
The regulatory body, the Dirección General de Seguros (DGS) has said the deadline will not be changed.
“The DGS has always been firm about maintaining that deadline,” says Santiago Fernández Valbuena, chief executive at Fonditel in Madrid. “But the reality is that the process of externalisation has not been easy at all.” The first thing Spanish companies had to do was to evaluate their pension reserves, to find out which commitments have to be externalised. Some companies are still in the process or doing so. “Once they’ve done this, they have to agree with the unions on the vehicle they are going to use for the externalisation,” says Fernández Valbuena. Normally, companies would not opt for a pension fund vehicle, since this would also imply having to select a gestora (asset manager), create a comisión de control (board of trustees), set up an office and recruit staff. “Most companies are choosing insurance contracts instead,” he says.
This ongoing discussion within the companies has been used in some cases as a tool for future negotiations with the unions, allowing them to choose the vehicle they prefer instead of being more belligerent about other issues related to company management.
“This shows that, even though for the DGS the externalisation process can be considered as an isolated one, the truth is that for the companies it’s much more complex and also has many more implications than they thought it will have,” he says.
“I do think that, in the end, the period to finalise the externalisation process will be extended,” he says. “In my opinion this will be a very reasonable decision, taking into account all these circumstances.If companies can’t meet the December deadline simply because the whole process has been more complicated than expected.”
If the DGS does not extend the period, companies not meeting the deadline could theoretically be sanctioned and the payments that will have to be made when they eventually externalise their pension reserves will not be fiscally deductible.