Updated on Tuesday, 12 October 2021 – 01:46
The government has dealt another near-fatal blow to private pension plans by limiting the deduction for contributions to 1,500 euros per year.
Jos Luis Escriv with Yolanda Daz and Mara Jess Montero. Emilia Gutirrez
The Government has once again surprised savers with another reduction of the only tax advantage left to private pension plans: from 2022, only contributions made to a plan can be deducted up to a maximum of 1,500 euros per year. Another turn of the screw to some savings instruments that are still in the crosshairs of the Ministry of Inclusion and Social Security within the reform of public pensions.
For this Government, the supplementary social security system is “Very regressive; it does not meet its main objective, which is to encourage savings; it is a very expensive product, and has little participation from young people“, as explained by Jos Luis Escriv in Congress a few months ago. With that starting point, pension plans have little future, despite the fact that at the moment there are more than 86,000 million euros invested in them.
The question is whether it is not better to encourage citizens to have access to a private plan with which to complete a public pension that will be less and less, whatever the lords of the Toledo Pact say. This Executive says that there are reasons to consider other instruments.
The first reason is that they are expensive products for the private saver. Pension plans, like mutual funds, charge fees for managing and depositing the money invested. The Ministry thinks that it is not justified that these commissions are higher in private pensions than in investment funds or in the employment plans themselves, to such an extent that it speaks of individual pension plans as one “disguised subsidy to the financial sector “:
The Ministry of Inclusion and Social Security is based on a study by AIReF, a body chaired by Jos Luis Escriv until he was appointed minister. According to the report, “the average commission of private plans is around 1.5%, while employment plans have been between 1.6 and 1 points cheaper“, they say in the Ministry. In the Basque EPSV – employment plans that collect the legislation of that autonomous community and that are given as an example by Escriv-, that commission is 0.2-0.3%. That is to say, it is an expensive product for participants – the commission is detracted from the fund’s profitability – and a very good income for banks.
The second point against is tax deduction of contributions, which, again according to AIReF, It is only used by the richest. When the tax-deductible limit for contributions was 8,000 euros per year, savers with the highest income – from 50,000 euros per year – accumulated 70% of the tax benefit, while incomes between 6,000 and 50,000 euros, 90% of the population, distribute the remaining 30%. Therefore, despite the fact that the average wealth that Spaniards have in individual pension plans is 11,000 euros, Podemos and other sectors of the left consider that they are products for the rich that will have to be eliminated.
The third point against pension plans for the Government is that they discriminate against young people. Contributions to a private pension plan depend on the income level of the investor. Logically, in the first professional steps, salaries are lower and young people have little ability to save. It is after 35-40 years when you start investing for retirement. “Only employment plans, as they are characterized by non-discrimination, cover the young population more effectively,” they point out in the Ministry.
These ‘contraindications’ lead the Government to bet on business plans as the best complement to the public pensionWhether Escriv, Sánchez, Daz and others want to or not, it will be necessary in the future to have a decent retirement. To “provide stability to the current model of complementary social security” it is necessary to “promote, in a preferential way, the systems supported within the framework of collective bargaining.” That is to say, individual pensions that are included in collective agreements and to which both the company and the worker contribute on a mandatory basis.
The problem is that this system can leave out millions of freelancers and workers in small and medium-sized enterprises who do not have the capacity to create a pension plan. Therefore, it will be necessary to have a large pension plan sponsored by the State to which they can benefit. This Government has it in mind, but it is something very complicated and it is still in its infancy.
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