Echoing the colleagues of “Estamos Seguros”, we want to talk about the savings promoted in companies to their workers, as an extra supplement to their salary. We will see how it is done and why, as well as the situation in Spain compared to other European countries.
The three pillars of social welfare
The three pillars speak of the ways in which pensions are financed in a country:
- 1st pillar: Social Security. This is the public benefit system, which is financed mainly through contributions from workers, the self-employed and companies.
- 2nd pillar: this is the private savings channel that is promoted through companies. It is on this second pillar that we want to focus today.
- 3rd pillar: individual private savings, not collective savings. Here it is not that the company promotes savings among workers, but that it is the initiative of each individual, who decides where to save and how he or she wishes to do so.
The way we save in Spain is totally different from other European countries. Here we are much more focused on real estate savings than on purely financial savings. However, in recent years there has already been a growth of the latter type and it seems that the outlook will continue.
Why does the 2nd savings pillar exist?
We all know that the Social Security is not at its best and its deficit is growing annually. This has meant that the S.S. has already had to take out a loan to pay pensions and that the medium-term forecast indicates that pensions, as we know them, will not be sustainable.
Spain is one of the most generous countries in terms of public pensions (as is the case with our healthcare system, which is among the best in the world). However, this is not the case in other European countries, where pensions are lower compared to pre-retirement salaries. This is reflected in the replacement rate, which we have already explained in previous publications.
In view of the foreseeable future drop in pensions, the 2nd pillar (like the 3rd pillar) becomes essential if we want to achieve retirements in which our quality of life is not greatly reduced. Companies have a very important role to play here in offering their employees some kind of savings plan to anticipate this situation and “cushion the blow”.
Of course, there is plenty of room for improvement, as in 2016:
- Out of every 100 euros received by a pensioner, only 3.70 euros were paid thanks to the second pillar.
- For every person who is part of a collective savings system in his or her company, there are five who are not.
What collective savings products are available?
For Collective Welfare (which is the name given to this second pillar), insurance companies offer different products. There are companies that decide to make the contributions themselves to their workers, while others use a mixed system (part is paid by them and, additionally, the workers pay another part). Either way, it can be seen that the company is encouraging savings among its workers.
By type of product we could distinguish very broadly:
Occupational pension plans
It is the most regulated form of collective savings, as it has very strict requirements: it requires the creation of a regulation of the plan itself as well as a control commission (made up of representatives of the employees and the company).
Due to its complexity, it is designed for large companies. However, it has very important tax advantages; for this reason it is very common in companies with more than 500 employees.
It is very important to know that the principle of non-discrimination applies to them. This principle states that, although a hierarchical distinction can be made between the contributions made in favor of each type of employee, all employees must have the right to participate in the same.
Savings plans
Much more flexible than the previous option, since the company will be able to choose the employees to whom it wishes to offer this remuneration, without it being obligatory for all of them.
Moreover, it can be long-term (as in the case of the occupational pension plan), but also medium-term and short-term. In this sense, we may want to offer an incentive to people involved in a long-term project, for example, by preventing them from leaving and making the savings product payable in the event of its successful completion.
Likewise, one can opt for conservative savings plans or plans linked to mixed or variable income funds. In other words, they adapt to what each individual is looking for.
Advantages of company pension plans
As we can see, any of these collective savings options are very important loyalty and motivation mechanisms for our personnel.
We are facing alternative remuneration channels to what are exclusively salaries. As we know, the package of social benefits that a company offers its employees (flexible working hours, work-life balance, health insurance, gourmet vouchers, etc.) is increasingly valued.
All this, including savings plans, reflects the company’s concern for the welfare of its employees and their families. That is why we always talk about an investment and not an expense, being aware that, for the company, they are deductible expenses in the Corporate Tax. In other words, both parties win.
If you want to know more, do not hesitate to contact us. From PIB Group Iberia’s Savings and Investment Department, we will help you.
