The Government has agreed to few fiscal changes in the 2020 accounts. Only one had been advanced, a minimum rate of 15% for Corporation Tax for large companies that will mean some 400 million euros more in income. We had to wait until the end of the press conference this Thursday by the Minister of Finance, María Jesús Montero, to learn about another measure: a new cut to the tax benefits of private individual pension plans. The objective is to transfer them to the pension employment plans that Minister Escrivá wants to promote with a public macro-fund.
What are the occupational pension plans that the Government wants to promote through a large public fund
As recommended by the Toledo Pact, the Executive announced last year its intention to promote employment pension plans. These are also known as “supplementary plans”, which companies make available to their workers so that, on a voluntary basis, they have a supplement to their public pension when they retire. Since the 2021 Budgets, the Government increased the tax benefits of these collective plans, of course, to the detriment of those that had recognized individual pension plans to date.
In addition to tax deductions, the Minister of Social Security, José Luis Escrivá, promised to create a public macro-fund of pensions linked to employment to promote this savings path and that it be extended to all workers. Not only of large companies, which are the ones that currently have the most access to them in Spain, but also among public workers, the self-employed and employees of small companies. The time limit given by the Government to create the legal framework to regulate this fund is approaching: the end of this year.
Transfer of 500 euros in the limit
The way to incentivize this transfer of savings from individual plans to employment plans used by the Government is focused on eliminating the tax advantages that the former have and that reduce contributions in the personal income tax return. Until 2021, up to 8,000 euros per year could be invested in these products. In this year’s budgets, the bar was lowered to 2,000 euros. For those of 2022 it will be 1,500 euros. The contributions of more that are made may be penalized. In the case of the limit for business plans, they go from 8,000 to 8,500 euros per year.
These incentives had long been questioned, because of their impact and because they benefit more those with the highest incomes and who made the largest contributions. Last year, the Independent Authority for Fiscal Responsibility (Airef) made an analysis of the tax credits existing in Spain and which had to be eliminated or rethought. One of them was this, which affected income tax collection. The body, chaired by Minister Escrivá between 2014 and 2020, assured that this measure did not meet the objective for which it was designed, which was originally to encourage complementary savings to the public pension system. The cost to the State due to the lower income was estimated at more than 1,600 million, with 66% of the accumulated tax benefit only being the 10% with the highest incomes, a clearly regressive measure.
The decision to limit tax benefits for individual plans has been widely criticized by the various employers affected, banking (AEB and CECA), insurance (Unespa) and investment funds (Inverco), all of them managers of these vehicles. They joined a year ago in a statement in which they called the measure “discriminatory” and that it “contravenes” the international trend. The CEOE went one step further and announced that it would bring to justice the public fund for “unfair competition.”
The statistics of Inverco, the employer’s association of private investment funds, indicated in their report for the first half of the year that there are slightly less than 7.5 million participants in individual pension plans, with an accumulated equity of 86,200 million, and almost 2 million in employment plans, with a net worth of 37,000 million.
The Social Security has justified its plan of the public pension fund linked to employment by indicating that in Spain there are 13% of workers covered by these complementary plans, compared to 19.6% in Italy, 24.5% in France, a 39.9% in Germany and 59.6% in Belgium. Escrivá assured that he hopes that “more than half” of the workers are linked to these complementary plans.
Two months to regulate the public fund
Along with the fiscal impulse, the Ministry of Social Security is working together with the Economic Vice-presidency in the regulation of public pension funds, for which the public accounts of 2021 gave “the maximum term of twelve months.” The margin ends at the end of this year, in two months. After closing the first block of the pension reform, the Ministry led by Escrivá is addressing some issues that were pending from this pact with unions and employers, such as the intergenerational equity mechanism, and other urgent matters, among which is the regulation of this macro background.
While waiting to know the Government’s proposal at the social dialogue table, the 2021 Budgets advanced some of its characteristics. The selection process of the entities that will manage the public fund – since the Administration does not have the capacity to do so, according to Social Security – will be done through an “open competitive tender”. The macro-fund will be governed by a control commission and oversight powers are given to the Public Administration. The agency’s investment policy “may not be modified, except with express authorization granted by the Ministry of Inclusion, Social Security and Migration,” for example.
The Minister Escrivá and the Secretary of State for Social Security, Israel Arroyo, have also advanced some of their operational plans, such as the possibility that there is an “automatic assignment” for future workers and that it has commissions much lower than the usual ones. of individual plans, which generate downward competition in market prices. In the coming months we will know at least the small print that will govern the macro fund, of which it is still unknown when it will start.