Updated Friday, March 22, 2024-12:43
By UEStudio.
Will you be able to maintain your standard of living when you retire? Spain currently has one of the most generous pension systems in the world: the replacement rate (relationship between the amount of the pension and the last active salary) is around 80%, according to the biannual OECD Pensions report
. at a Glance 2023
, compared to less than 60% of the average for European Union countries and 56% in developed countries. But forecasts suggest that in the middle of the century, when the workers who have joined the labor market in recent years retire, this rate could drop below 50%.
It must be taken into account that the public pension system in Spain is pay-as-you-go, that is, it finances ongoing benefits through contributions from active workers. In such a model, demographics are one of the key aspects that determine financial sustainability. For the contributions received by workers to be sufficient to pay the pensions of current pensioners, there must be a proportion of workers greater than the number of pensioners. The dependency rate, which measures the relationship between the number of retirees and the active population, is increasing in Spain: currently there are approximately three workers for every retiree and
in 2050, based on forecasts of the evolution of the population, there will only be two workers per retiree
.
How to prepare for retirement with an employment pension plan
The life expectancy of people born today in Spain exceeds 82 years. Since 2013, access to the retirement pension depends on the age of the interested party and the contributions accumulated throughout their working life, requiring having turned 67 years or 65 years when 38 years and 6 months of contributions are accredited.
Having financial security to live a dignified retirement will, therefore, increasingly be the result of a successful savings and investment planning process throughout one's professional life.
"Everything indicates that in the future the amount of the public retirement pension will be lower than the current ones and, therefore, it is important
to have a long-term savings product that complements the future pension
," says Arantza Barrera, Director of the Pension Plan Business at Ibercaja Pensión, the third national manager of employment pension plans according to Inverco's quarterly statistics.
A very useful tool for this purpose is employment pension plans, a long-term savings-prevision product, whose promotion and management depends on the company itself, and which has great advantages for workers and also for the organization itself. .
How does the employee benefit?
The company's contributions are not subject to personal income tax withholding, they are charged as income from work (this would be deferred salary) and are subsequently reduced, by the same amount, in the general tax base. They will only pay personal income tax for the amounts contributed when they retire or receive the benefit for another reason such as: death, disability, long-term unemployment, serious illness or dependency.
"This tax deferral is an excellent savings method," says Juan Linares, director of Tax Consulting at Ibercaja, "and its profitability can increase even more if the tax savings
generated by the plan are
reinvested
annually . "
According to Inverco estimates, this strategy could mean 40% more income.
On the other hand, contributions must contribute to Social Security, which contributes to improving coverage for workers. For this reason, the company's contribution should be considered as
a double source of savings: the private one derived from the contribution to the plan itself and the public one generated by the increase in the Social Security contribution.
A third advantage for the employee is that they can use the company pension plan to create greater personal savings, complementing it with their own contributions within the legally established limits.
How to prepare for retirement with an employment pension plan
Advantages for companies
The benefits for companies are also, to a large extent, of a fiscal nature: the contributions are
deductible expenses in the Corporate Tax
of the financial year in which they become effective; The first 128.86 euros of
the company's monthly contribution in favor of each worker
do not contribute to Social Security
; and there is a
deduction in the full amount of Corporate Tax of 10% of
business contributions to employment plans allocated in favor of workers with annual gross salaries of less than 27,000 euros and, proportionally, for higher salaries.
But, with the implementation of these plans, companies also obtain
social and human resource advantages
: they serve as an instrument of remuneration policy; They are a good tool for employee loyalty and talent retention for companies; They show the company's commitment to the quality of life of its employees and improve the reputation of the company, as well as the financial well-being of its workers.
Despite their undoubted advantages, these forecasting instruments have not yet begun to take off in Spain. According to data from Inverco, currently
only 1% of Spanish companies promote pension plans for their employees
and only 10% of workers have this savings instrument for retirement. And that, according to the VII Study on the situation of pensions in Spain by KPMG, it is the most valued social benefit after health insurance.
In this context, it is worth remembering that Law 12/2022, on the Promotion of employment pension plans, aims to develop savings in pension plans from companies, thus bringing us closer to the rest of European countries and
ensuring that in 2030 employment plans are extend to at least half of the workers
.
Employers often argue that this is an unattractive product for their employees because they will have a significant
tax impact at the time of collection
. The truth is that there are different ways to do it to better fit each person's personal situation, so it is advisable to have advice from experts in the field.
It is not necessary, on the other hand, for all employees to adhere to the plan proposed by the company, so it can be implemented only for those who are interested. In any case, it is worth keeping in mind that, although it seems better to increase salary than to increase remuneration through contributions to pension plans, this route has a socially highly valued component by employees, which helps
form a habit of saving and future planning. very necessary today
.
One of the types of employment pension plans are joint promotion plans, which are characterized by the
simplification of contracting and management procedures
. They are
fully compatible with individual pension plans
, so an employee can have both types of plans. In any case, the balance of the employment plan belongs to the worker, regardless of any situation that the company may go through. For its part, the company can link the contributions to the benefits or suspend them when this is not always agreed upon with the workers and included in the conditions of the plan.
Advantages for self-employed
From 2023, self-employed workers can join simplified self-employed employment plans. Thanks to this new instrument, they can maximize their savings and their tax relief above the general annual limit of 1,500 euros of contributions to individual pension plans with an additional increase of 4,250 euros.
The self-employed can thus make voluntary contributions, one-time or periodic, that reduce their personal income tax tax base and with which they can
deduct taxes up to 5,750 euros
or 30% of the sum of the net income from work and economic activities.
At the time of inheritance
Upon death, it must be taken into account that the benefits collected by the beneficiaries are never taxed in the inheritance tax because they are not an integral part of the estate: the personal income
tax of the beneficiary is what determines the tax payment
and will not have to be paid until he is rescued
.
That the pension plan is not part of the estate has two implications. The first is that, even if no will has been made, the pension plan will be received by the beneficiary designated by the owner of the designated plan. And the second is that you can designate the beneficiary you want and change it as many times as you want.
With all this, employment pension plans are acquiring an increasingly relevant role in the financial well-being of workers, companies and the self-employed. Therefore, it is advisable to have specialized advice throughout the life of the plan, from its implementation to the moment of rescue, through making contributions and even when planning an inheritance.
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