The appointment of a new director general to the Spanish Insurance Directorate could delay publication of regulations required by companies to comply with a 1995 Spanish pensions law.
Under the law, the deadline for conversion from book reserves to externally funded schemes is May 1999, but the appointment of Pilar Gonzalez de Frudos to succeed Antonio Fernandez Toraño could delay publication of the regulations until 1998.
The three-year transition period officially began last May, and following the Popular Party’s election victory in March the press had been predicting publication in October 1996. So far the directorate has failed to publish even draft regulations.
This is particularly worrying for business, as it coincides with an agreement reached between government and unions just before Christmas to limit social security. Most defined benefits plans offer 70% of salary minus the social security pension. Now that it is being cut, the burden on companies will increase and this would be an ideal time to change the basis of schemes.
The new law sets out two ways of external funding: a qualified pension plan or an insurance contract. The latter has particularly suffered from the failure to publish regulations.
Fernando Corral, compensation and benefits manager at Hewlett Packard, says: The changing political situation has delayed this process. There are very many Spanish companies waiting for these regulations so that they can implement new pension plans.”
Hewlett Packard plans to put in place both types of scheme. “There is an official tax limitation below which you benefit from saving. Below this tax limit we plan to implement a qualified pension plan, above that limit we will use collective insurance,” says Corral.
Ian Hinton, an actuary with Aserplan in Madrid, says: “Nobody could set up an externally funded policy and be absolutely certain that it would satisfy the regulations.” The regulations should have detailed how to set up the insurance contracts and included other requirements concerning funding and past service deficits.
The qualified plan is more tax-effective and has a non-discrimination clause opening membership to all employees with over two years’ service. It also requires employee representation of 51%. The insurance contract, which should ironically be easier to set up, does not require employee representation but is less tax-effective.
Hinton commented: “At the moment most companies are saying: ‘Well this is all very interesting’ but nobody has actually taken any action yet. Our advice is not to implement anything at the moment.”
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