Spain’s pension funds struggle to grow as employers and workers disagree over who should pay

Spain’s private pension system faces a funding stalemate: employers resist an additional labor cost, unions argue contributions should come on top of existing wages and be paid mainly by companies, and the government has maintained limited tax incentives. Meanwhile, individual plans have contracted since the 2021 reform and workplace schemes have yet to gain broad adoption.

The pension industry has been operating for more than three decades, and over ten million people have participated in private plans. But the source notes that some people hold multiple accounts, and says the system’s accumulated savings remain modest. As of July, total assets stood at €144.2 billion: €101.8 billion in individual plans and €42.4 billion in workplace plans.

Using those figures and assuming one account per participant, the source estimates average accumulated savings of €13,733. Spread over 20 years, that would amount to about €57.20 a month as a supplement to the public pension. The calculation is illustrative, rather than an estimate of what every participant would receive.

The article argues that repeated assurances from successive governments about the security of public pensions have done little to encourage additional saving. It also says governments have made limited efforts to promote private pension contributions, despite the potential for funded plans to ease pressure on the public system.

With limits on individual-plan contributions restricting that route, attention has shifted to workplace funds, the main area left open by the 2021 reform. Their uptake has so far been limited, with only a small number of large collective agreements adopting them, even though the plans allow higher contributions with tax deductions.

Employers say workplace contributions would add to already strained labor costs and generally favor funding them by redirecting part of existing pay. Unions reject that approach, arguing it would reduce wages and that companies should bear most of the cost. The government, meanwhile, has not changed the tax treatment: contributions receive a deduction when paid in, but withdrawals are taxed as employment income, including investment returns, according to the article.

The piece also raises the possibility of making workplace pension participation compulsory, with an option to leave later, as has been tried in the United Kingdom. It notes that Spain’s Constitution treats participation in these savings arrangements as voluntary, creating a legal question for any such model. Small businesses, limited union presence, weak collective bargaining and the prevalence of temporary and part-time work are also identified as obstacles to wider adoption.

The article calls for stronger tax support for workplace plans, arguing that it could encourage saving and reduce pressure on Social Security. It also suggests that lower-income workers face particular difficulty building savings, and proposes moderating increases to the minimum wage and related pay bands to leave room for contributions to potentially mandatory funds.

Sources: El País Economía.