Earlier this year, the OECD urged Spain to implement new reforms to prepare the country for the consequences of population ageing, including the possible introduction of compulsory-second pillar pensions. In its June 2001 policy brief, the OECD says that recent pension reforms are not likely to improve the viability of the public pension system, which currently is more generous than in most OECD countries.
The expected boom in the creation of new pension fund in Spain faded away when the Spanish government decided to postpone the deadline for companies to outsource their pension commitments.
The law on the externalisation of pension funds came into force in 1995, amending the Pension Funds and Pension Plan regulatory law, approved by the Spanish Government in 1987. This new law required companies to externalise existing or future pension commitments with their employees through an external pension fund, an insurance contract or a employee welfare mutual insurance company.
Pressure from employers and trade unions forced the government to postpone the initial deadline, set for January 2001, for a further two years. Although some of the externalisation negotiations that were already in progress at the end of 2000, were completed during the following months, for those companies which still hadn’t started the process, the government’s decision meant there is no need to rush things, and it seems that not much will be done until the new deadline gets closer.
Although employers and unions have been criticised for not been able to agree on the best way to externalise pension commitments on time, the truth is that the whole process has been more complicated than the regulatory body, the Dirección General de Seguros (DGS), originally thought .
However, among those who have already finalised the externalisation process, arranging insurance contracts has been the preferred option. The reason behind this is that creating a pension fund involves, among many other things, having to choose a gestora – pension fund manager – appointing a board of trustees and recruiting extra staff.
Although under the new law, financial institutions are not obliged to externalise their pension reserves, the largest externalisation have come from the financial sector. Last summer, La Caixa, the third largest financial institution in Spain, agreed the externalisation of its pension reserves, creating a pension fund with assets of Pta259bn (e1.6bn)for its 17,000 employees.
Most recently, Banco Bilbao Vizcaya Argentaria (BBVA), also reached an agreement to externalise the pension reserves of those employees coming from the former BBV, representing around 21,000 workers, through a defined contribution (DC) pension fund.
Caixa Catalunya also signed an agreement to create a pension fund vehicle open to its 5,000 employees with initial assets of Pta60bn.
Outside the financial sector, negotiations to create new pension funds have been even slower, although some of them have already started working. Endesa, which represents more around 45% of the Spanish electricity sector, is to externalise Pta400bn representing the pension reserves of most deferred members and pre-retirees of the group, around 25,000, using insurance contracts and will transform the mutual covering its active members in the near future.
In October 2000, the Sociedad Estatal de Participaciones Industriales (SEPI) started its externalisation plan through three insurance contracts to cover employees working for three of its companies. Other companies such us Renfe, the Spanish railways company and Correos, Spain’s post office, are also working on the outsourcing of their pension reserves and new pension funds and insurance contracts will set up in the near future.
Despite complaints from actuaries who have seen their workload after the government’s decision of postponing the externalisation deadline for two further years, it is true that the new deadline is not too far away.
By the end of 2002 those companies which haven’t finalised the process could be, in theory, sanctioned, and their future payments in the externalisation process barred from fiscal deduction.