On 23 November 2021, the Spanish Council of Ministers approved a preliminary draft law regulating occupational pension plans.
The aim of the new legislation is to facilitate access to collective plans for low and middle-income workers and small and medium-sized enterprises, as well as for the self-employed and young people. In addition, through the public promotion of pension funds, collective bargaining and the promotion of plans by associations of the self-employed and professional associations, long-term savings products will be offered at a lower cost than at present. The reform will be accompanied by a modification of tax incentives, so that the tax benefit is passed on to participants.
The inadequacy of supplementary schemes in recent years has been clear to all, which has prompted the Parliamentary Committee to reaffirm the need for their ‘effective implementation’ through collective bargaining.
José Luis Escrivá, the Minister of Inclusion, Social Security and Migration has stated that, in the opinion of the current government, individual pension plans are not yielding the expected results and, for this reason, it wants to opt for collective pension plans linked to companies as an instrument to complement public pensions.
The need to reform the supplementary social welfare is based on the immediate background set out below.
The 16th recommendation of the Toledo Pact of 2020 (the agreement between the Spanish government and social partners on reform of the public pension system) focuses on providing stability to the current social security model and giving preferential impetus to employment systems based on collective bargaining, giving them appropriate and differentiated fiscal and legal treatment.
The Recovery, Transformation and Resilience Plan in the fifth reform of component 30 foresees the approval of a new legal framework to promote occupational pension plans and contemplates the public promotion of pension funds to cover groups of workers without occupational pension plans in their companies or self-employed.
Law 11/2020 of 30 December on the General State Budget for 2021 (‘Law 11/2020’) provides that the Government will submit a draft law on public occupational pension funds, giving the General State Administration the legal capacity to promote them.
According to Ministry sources, these collective pension plans linked to employers would be set up as a collective instrument of complementary social provision with public supervision and guarantee and could be privately managed, taking the British pension model (National Employment Savings Trust, or NEST) as a reference for its implementation. However, this model is different from the British model under which all organisations are obliged to have a pension plan. In Spain such a provision is not compatible with the requirement that supplementary benefits (such as savings and investment mechanisms and as a complement, but never as a replacement for public pensions) must be free under the second clause of article 41 of the Workers’ Statute, which establishes mandatory and minimum labour conditions.
In Spain, the only similar system that exists is the Voluntary Welfare Entities (EPSV), which operate in the Basque Country. In EPSVs, company plans are linked to sectoral collective agreements, they have tax advantages and the worker contributes 1% and the company another 1% to the pension plan.
Therefore, in order for the general requirement for companies to establish social security systems to be compatible with Article 41 of the Spanish Constitution, it is essential that the establishment of company social security systems leading to these free supplementary benefits be implemented through collective bargaining (sectoral collective agreements or sectoral collective agreements on specific matters).
Collective bargaining is the key element in the process of expanding corporate social security to a large number of sectors (where small and medium-sized enterprises predominate).
Articles 67 to 69 of the Draft Bill of the Law Regulating Publicly Promoted Employment Pension Funds and Simplified Employment Pension Plans will radically modify the configuration of pension plans.
Article 67 regulates the possibility for sectoral collective agreements or sectoral agreements on specific matters regulated in Article 83 of the ET to establish that within the scope of a specific sector (e.g. commerce), a sectoral (but not company) pension plan is promoted and regulated in the collective agreement itself, in which all companies included in the scope of application of that sectoral agreement are promoters.
Article 68 then provides that the collective agreement may provide for compulsory membership of the pension scheme (as a binding collective bargaining decision, in the same way that the collective agreement may choose to regulate a new wage supplement).
The article states that organisations included in a sectoral statutory collective agreement that provides for the implementation of pension commitments to their employees through a simplified sectoral occupational pension scheme must join the scheme if the agreement so provides.
Without prejudice to the above, the statutory collective agreement at sectoral level may provide for:
To return to the example of the commerce sector, let us consider a sectoral agreement for commerce or department stores that affects thousands of companies that will be obliged to join a sector-wide pension plan. All the companies included in its scope of application will be co-sponsors and will have the regulations that derive from collective bargaining in terms of, for example, company and worker contributions.
Undoubtedly, there is going to be a major change in the system of complementary social provision, which will cause company-level provision to emerge as a protagonist to the detriment of individual social provision (that is, individual savings channelled through savings products aimed at retirement).
Voluntary individual savings can be expected to be reduced and the pressure on workers’ savings will be shifted to the corporate level.
In order to make the implementation of these pension plans attractive, ‘the advantageous taxation of individual plans is being shifted towards employment plans resulting from collective bargaining,’ with the aim, according to the minister, of ‘benefiting middle and low incomes and including young people.’
Having drastically reduced the tax deduction for contributions to personal pension plans in 2021 (from EUR 8,000 to EUR 2,000), the government envisages a further reduction in the General State Budget Law for 2022, to EUR 1,500. At the same time, the Budget Law raises the deductible contribution for collective or company plans to EUR 8,500.
According to the information issued by the Ministry, the aim of this reform is to try to reach half of the working population, multiplying by four its current penetration. At present, there are 8.5 million participants or policyholders in individual pension systems and 2 million in company pension plans, with the assets of these plans standing at EUR 35,681 million. Spaniards’ loss of interest of in company pension plans is notorious, and their significance as a complementary pension formula has decreased continuously since the 90s; at that time they represented 50% of social welfare, currently they represent 25%.
It is also the Government’s objective to bring the level of protection into line with that of other European countries. Currently in Spain, pension plans supplement pensions for little more than 10% of the working population, while in other Europe countries, the level of employees’ protected ranges from 25% to 90%, depending on whether their plans come from voluntary collective bargaining (less than 60%) or from compulsory or quasi-compulsory regulations (with higher percentages).
Having said this, the financial sector is critical of the reduction in the maximum tax relief ceilings for individual and private pension plans, as these measures make it very difficult for the two types of plans to coexist (which would be desirable) and mean that the strengthening of one is, in practice, detrimental to the other.
It will be important to keep an eye on the way in which these employer-linked collective pension schemes are introduced into the collective bargaining framework and what this means in practice for companies.
The law will also mean the configuration of a new framework for complementary social provision in the professional sphere by including the self-employed in it, as it allows associations of self-employed workers, professional associations and mutual societies linked to them to promote complementary pension plans.
The Ministry hopes to attract and incorporate the self-employed. The draft refers to the various difficulties that the self-employed have had to endure in order to access this type of complementary plans:
‘It is estimated that [the self-employed] have subscribed to more than one million personal plans, with high commissions. It is proposed that they should have access to employment plans, with more advantageous economic conditions than those currently available to them.’
The preliminary draft is currently being negotiated, with the aim of coming into force from 2022.