Increasing savings in employment pension plans is one of the goals that the Minister of Social Security, José Luis Escriva, set out to achieve when he took office, and to that end the design of the total company pension fund which, in the opinion of experts, can improve the social welfare of companies in Spain, but it has drawbacks that will reduce its effectiveness.
To tackle these tasks, analysts advise Escrivá to repeat Automatic Enrollment (AE), a corporate social welfare system implemented in the UK in 2012 that has had very good results.
“This model has been very successful and has made it possible to increase the long-term savings for workers’ retirement. This makes it a good solution for strengthening the second pillar of supplementary social security in Spain and strengthening the public pension system”, Elizabeth CasaresSecretary General of the Organization of Pension Counselors (Ocopen).
Correction of defects
The British system mitigates two major disadvantages of the Spanish macro fund: voluntary affiliation and the absence of tax incentives for companies implementing employment schemes.
AE defaults to the worker, who can waive it, and is mandatory for employers.
These must enroll all of their employees who meet the minimum requirements in the company’s pension plan and make mandatory contributions in their favour of 3 percent of salary. In return, workers must contribute 4 percent and the state 1 percent through tax cuts on contributions.
Although employees can opt out of hiring plans, they hardly ever do so. According to data from the insurance employer Unespa, since its implementation, more than 10.2 million workers are automatically registered in the system, of which 91 percent have remained.
To be part of a business plan, you must be over 22 years old, not close to retirement and earn at least £10,000 a year.
Another feature of the British model that the Spanish model should embrace is to offer tax incentives to companies that adopt pension plans for their workers.
So respect Angel Martinez Checkers, President of Inverco: “It must include strong tax incentives for these companies, or else it will make it difficult to achieve their goals of stabilizing the current supplementary social security model and strengthening corporate pension plans supported under collective bargaining, making them more accessible to SME workers and workers for their private account “.
An increasingly necessary increase in Spain if one takes into account that only one percent of companies have a pension plan and only one in six workers has that kind of savings.
That puts assets in employment plans around 36,200 million euros, away from the 87.587 million euros that comprise individual pension plans, according to the Association of Collective Investment Institutions and Pension Funds (Inverco).
Analysts argue that the implementation of automatic registration in Spain is possible if the parties involved reach an agreement: the executive branch and social agents.
“The Spanish government should adopt the British model, basically the measures that worked best, such as automatic registration in the business plan, that the participant contribute an amount equal to or greater than the employer, and that there is an important tax incentive for both” Enrique Devesa, Professor at the University of Valencia and IVIE researcher.
To implement it in Spain, it would be necessary, in his opinion, “political will”. The same as Isabel Casares is demanding: “The government must establish a clear approach to reaching an agreement with companies, especially SMEs, and unions so that the British model is implemented as a complement to our public pension system and never as a substitute.
It also considers that consensus is necessary on how companies will compensate for the increase in costs and the efforts they are making to implement this system.
Miguel Angel MenendezD., director of Mercer Spain’s social welfare district, sees difficulties in adopting AE, despite the fact that he considers it an “excellent solution”.
The problem stems from the fact that Spanish legislation “prevents companies from being forced to implement retirement plans for their employees”, but believes that this obstacle can be avoided “by considering their implementation through collective bargaining”.
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