Echoing our colleagues in the “We are safe”We want to talk about the savings promoted in companies for 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 to the ways in which pensions are financed in a country:
- 1st pillar: Social Security. It is the public benefit system, which is mainly financed by contributions from workers, the self-employed and employers.
- 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: the individual private savings channel, not collective. Here it is not that the company promotes saving among workers, but it is the initiative of each individual, who decides where and how he or she wants to save.
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 pillar of savings exist?
We all know that the Social Security is not at its best and its deficit is growing every year. This has meant that the NHS has already had to borrow money to pay pensions and the medium-term forecast is 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 substitution rate, which we have explained in previous publications.
In view of the foreseeable future pension cuts, The second pillar (like the third) becomes essential if we want to achieve retirements in which our quality of life is not greatly reduced. Companies have an important role to play here in offering their employees some kind of savings plan to anticipate this situation and “cushion the blow”.
However, the room for improvement is extensive, 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 scheme in their company, there are five who are not.
What collective savings products are available?
For the Collective Provision (which this 2nd pillar is called) insurance companies offer different products. There are companies that decide to make the contributions themselves to their employees, while others use a mixed system (part is paid by the company and, additionally, the employees pay another part). Either way, it can be seen that the company is encouraging savings among its employees.
By product typology we could distinguish very broadly:
Occupational pension schemes
It is the form of collective savings more regulated, It has very strict requirements: it requires the creation of a regulation of the plan itself as well as a monitoring committee (made up of representatives of workers and employers).
Because of 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. It points out that, although it is possible to distinguish hierarchically which contributions are made in favour of which type of employee, all workers should be entitled to participate in the same.
Savings plans
A lot more flexible than the previous option, as the company will be able to choose the employees to whom it wants to offer this remuneration, without it being compulsory for all of them.
Moreover, it can be long term (as in the occupational pension plan), but also medium and short term. In this sense, we may want to offer a incentive to people involved in a multi-year project, for example, by preventing them from leaving and making the savings product payable on successful completion of the project.
Similarly, it is also possible to opt for conservative or fund-linked savings mixed or variable income. In other words, they adapt to what each individual is looking for.
Advantages of occupational benefit plans in companies
As we can see, any of these collective savings options, are loyalty and motivation mechanisms of our staff are very important.
We are looking at alternative remuneration channels to what are exclusively wages. As we know, there is an increasing value placed on the social benefits package that a company offers its employees (flexible working hours, work-life balance, health insurance, gourmet vouchers, etc.).
All this, including the savings schemes, reflects a the company's concern for the welfare of its employees and their families. This is why we always talk about an investment and not an expense, and we are also aware that, for the company, these expenses are deductible for corporate tax purposes. In other words, both parties win.
If you want to know more, do not hesitate to contact us. From the Savings Department from PIB Group Iberia, we will help you.
