Friday, January 28

The three rules that will revolutionize pensions

The pension reform is already underway, at least the first part, after the approval by the Congress of Deputies of the opinion of the bill to guarantee purchasing power, which returns to revalue pensions based on the CPI and substitutes the sustainability factor for the intergenerational equity mechanism. Enter a price rise.

But it is not the only regulation that is being processed and that will transform future pensions. Two others are the general state budget (PGE), which they modify the law on pension plans and funds, and the draft bill that proposes the creation of a macro public pension fund.

Purchasing Power Guarantee Bill

It proposes acting on two objectives: guaranteeing “the maintenance of the purchasing power of pensions through a criterion of revaluation linked to the evolution of inflation“and strengthen” the financing structure of Social Security through the assumption by the State of non-contributory expenses. “

It establishes that the revaluation of the pensions at the beginning of each year will be carried out in accordance with the average inflation registered in the previous year, with the guarantee that in the case of negative inflation “the pensions will not suffer any decline.”

A dangerous measure for the system

This revaluation of pensions based on the CPI does not convince the experts. They argue that it endangers the sustainability of the public pension system.

This is the case of Gonzalo Nunez, a lawyer at the Bardají-Honrado Abogados law firm and professor at Udima, for whom “it is very dangerous for Social Security, as well as being an additional burden for current contributors.”

For Enrique Devesa, a professor at the University of Valencia and a researcher at the IVIE, revaluation with the CPI “is the easy solution” because it maintains the purchasing power of pensions, but “if extra income is not added to the system, it will present serious sustainability problems” .

The bill also penalizes early retirement e encourages their delay with an increase of 4 percent of the pension per year of delay, instead of the current 2 percent.

Draft law of general state budgets

The approval of the PGE for 2022 will also generate changes in pensions, since they include a reduction of the limit on contributions to individual plans with the right to deduction in personal income tax, from 2,000 euros to 1,500 euros.

These descents will harm 7.5 million participants in individual pension plans and almost a million savers in insured pension plans (PPA), they point out from Inverco.

An “unjustifiable” cut

The measure has not been to the liking of experts or the industry either.

“This new reduction is surprising and is not in line with the promotion of the three pillars of the pension system advocated by the OECD: public pensions (first pillar), occupational pension plans (second pillar) and individual plans ( third pillar) “, says Angel Martinez-Aldama, president of Inverco.

For whom “if the Government does not want to eliminate individual plans, it has little to do. It has already left them very limited”

He argues that the government’s way of proceeding is not “reasonable or timely, especially when these plans continue to work despite the fiscal and financial reductions they have suffered in the last ten years.”

Too José Antonio Herce, founder of the consulting firm LoRIS, believes that the new proposed cut is “unjustifiable”, just like the one Escrivá made in 2020 for the current year by reducing the limit of contributions to individual pension plans from 8,000 to 2,000 euros.

That is why he asks himself “where is he going to go? the Government with these measures “and believes that the Treasury and the Ministry of Social Security” are wrong to take them.

How to mitigate the negative effects of the reform?

Punishing early retirement and reducing the contribution limits to individual pension plans “could mean an increase in costs for companies in their departure processes and staff renewal and less flexibility to access retirement “, argues Marta Pedrero, senior social security consultant at Mercer.

In addition, it considers that they imply an increasing complexity in terms of planning and implementing succession policies, which could cause difficulties in retaining talent and bottlenecks in the career development of younger employees.

To mitigate the damages that the reform may cause to future pensioners and companies, Mercer proposes implement new ways of working for senior employees and develop career plans or layoff systems. It also considers “very relevant, to work on new models of professional outings and financing plans for these.”

Bill to promote the macro fund

The third regulation, the preliminary draft of the regulation law for the promotion of employment pension plans, provides for the creation by the Government, of a macro of public employment to which both SMEs, freelancers and public entities can benefit, without closing the door to those private companies that wish to do so.

This will allow, in the opinion of Mercer experts, that all these entities implement in a simpler way savings systems that improve the economic conditions of their workers.

Defects of the public company fund

Experts value the creation of the macro public fund “positively”, but acknowledge that it is born with “defects”.

This is the case of Enrique Devesa, for whom the idea of ​​promoting the second pillar of social security “is good” because “it will facilitate access to employment plans for companies, workers and the self-employed.” However, he criticizes that they are being pushed at the cost of reducing tax incentives for individual plans.

Another weakness of the fund, in Devesa’s opinion, is that “everything is left in the hands of collective agreements, which introduces uncertainty about the possible differences and different treatment towards the participants that may arise “.

The danger of transfers

Isabel casares, Secretary General of the Organization of Pension Consultants (Ocopen), also attributes defects to the bill, such as that it will cause transfers of employment pension plans with positive returns, “attracted by the promises of lower commissions and better tax treatment ”.

But it is not the only shortcoming, “the non-mandatory registration of workers for these products may, despite collective bargaining, leave these plans without enough participants,” he says. Miguel Angel Menendez, director of the Wealth area of ​​Mercer Spain.

To which is added that “it does not incorporate tax incentives for companies, which leaves the negotiation at a standstill.” He wonders why “workers would change part of their immediate salary for deferred salary when it is already difficult for them to make ends meet.”