Country Profiles

Spain

Country Profiles

Spain

Complementary pensions (Voluntary)

Updated: 31 December 2018

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2018: Royal Decree 62/2018, of 9 February, which modifies the regulation on the instrumentation of the companies´ commitments for pensions with the workers and beneficiaries, approved by the Royal Decree 1588/1999, of 15 October, and the regulation of plans and Pension funds, approved by royal Decree 304/2004, of 20 February

2017: Law 27/2011, of 1 August, on updating, adequacy and modernisation of the Social Security System

2014: Royal Decree 681/2014, of 1th August, which modifies the regulation of plans and pension funds, approved by royal Decree 304/2004, of 20 February, the regulation on the instrumentation of the companies´ s commitments for pensions with the workers and beneficiaries, approved by Royal Decree 1588/1999, of 15 October.

2011: Act 2; of 4 March, amends Act 1/2002.

2009: Royal Decree 1299, amends Royal Decree 304/2004

2007: Royal Decree 1684 of 14 December; amends Royal Decree 304/2004.
Royal Decree 439 of 30 March, amends Royal Decree 304/2004

2006: Act 11; regulates cross-border activity of pension plans and funds.

2004: Royal Decree 304: approves the Pension Plans and Funds Regulation, incorporating all aspects of the European Union Regulation, especially Directive 2003/41/CE, except in relation to cross-border activity.

2002: Act 1; consolidates the Pension Plan and Pension Funds Law of 1987 and all its modifications; regulates the establishment of pension plans, pension funds and pension fund management entities; defines maximum contribution limits, regulates tax treatment and includes measures concerning protection of rights.

1999: Royal Decree on the implementation of employers' pension agreements with employees and beneficiaries; requires employers, based on the Insurance Law of 2004, to implement occupational pension agreements through group insurance contracts and/or the creation of a pension plan; restricts the establishment of book reserves to certain occupational pension agreements in the financial sector and provides for transitional arrangements for pre-existing plans.

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Plan sponsors

Employers may, on a voluntary basis, conclude pension agreements with their employees. Obligations arising from these agreements may be implemented through a pension plan or through group insurance contracts. Pension agreements can exceptionally and on a temporary basis be implemented through the establishment of book reserves (see section Types of plans).

There are different types of insurance contract to implement supplementary social provision; PPSE (Planes de Previsión Social Empresarial) and collective insurance policies. PPSE are similar to pension plans in regard to financial and fiscal requirements.
Associations, syndicates and trade unions may, on a voluntary basis, establish association pension plans for their members.

Financial institutions may establish individual pension plans and offer them to all individuals.

Types of plans

Pension plans: The pension plan legislation permits three types of pension plans: occupational, association and individual pension plans.

The pension plan legislation distinguishes between Employment Pension Plans (comprising only occupational pension plans), individual pension plans and association pension plans.

Occupational pension plans are implemented through occupational pension funds and individual and association pension plans are implemented through personal pension funds.

Employment pension plans:
Employment pension plans are where promoter is any entity, corporation, society , company and whose members are employees.

Single employers may implement a pension agreement with their employees through the creation of an occupational pension plan. An employer can sponsor only one pension plan.

Nevertheless it is possible for several different sponsors to promote a single plan for all their workers (planes de promoción conjunta).

A group of companies, a sectoral collective agreement or a public administrative body may also sponsor an employment pension plan.

Likewise, the sponsor who employs workers may promote an occupational pension scheme in their interest, in which he or she may also be included as a member.

Plans may be defined benefit, defined contribution or hybrid. Contributions may be made by employers and employees.

Association pension plans: Associations, syndicates and trade unions may establish a pension plan for their members.

The associated pension plans may be defined contribution, definited benefit or hybrid. In this type of pension plans only members make contributions.

Individual pension plans: Financial institutions may establish individual pension plans and offer them to all individuals.

Plans must be defined contribution plans, with no guarantees. Contributions are only made by the plan members.

Association and individual pension plans are not covered further in the following sections.

Group insurance contracts: Single employers may implement the pension agreement with their employees through group insurance contracts with an authorized life insurance company.

The administration of insurance contracts is subject to insurance legislation rather than pension plan legislation and is not covered further in the following sections.

A new type of insurance contract (PPSE -see above) was implemented in 2006, which in practice functions in a similar way to a pension plan.

Book reserve: The book reserve method of implementing pension agreements was permitted prior to 1995. Banks, insurance companies and other financial intermediaries may, for a limited transitional period, continue to use the book reserve method to implement pension plans which were in existence at the effective date of the Insurance Act of 1995, for members who joined the plan before December 1999.

Pension agreements implemented through the establishment of book reserves are not discussed further in the following sections.

All plans: Membership is voluntary for covered employees.

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Employment Pension plans: A Plan Control Commission must be established for each occupational pension plan, with members representing the sponsoring employer, employees and beneficiaries. At least half of the members of the commission must be employer representatives.

The Plan Control Commission:

- supervises the operation of the plan;
- appoints an actuary to review the plan;
- proposes changes to contribution rates on the basis of the actuarial review;
- decides through which pension fund the plan is to be implemented;
- nominates representatives to the pension Fund Control Commission;
- represents the plan's interests with the fund administrator appointed by the pension Fund Control Commission.

Pension plans must be implemented through pension funds, which are autonomous patrimonies without legal personality, established for the sole purpose of implementing pension plans. Pension funds may be established either as closed or open funds.

The establishment of a pension fund is subject to the approval of the Ministry of Economy and Finance - Insurance and Pension Fund Directorate - and pension funds must be registered with the Ministry. The statutes establishing the fund must be attached to the application for its approval and must regulate:

- the procedures for the election of members of the Fund Control Commission and the renewal of their mandates;
- the investment policy;
- the actuarial basis;
- the rules for winding up the fund.

A Fund Control Commission must be established for each pension fund. If a pension fund implements several occupational pension plans, its Control Commission must include employer, employee and beneficiary representatives selected proportionately from the Plan Control Commissions. Where a pension fund implements only one occupational pension plan, the Plan Control Commission also carries out the functions of the Fund Control Commission.

The Fund Control Commission:

- supervises the operation of the fund;
- appoints the fund administrator;
- appoints the custodian (see section Asset Management);
- decides on the admission of pension plans to the pension fund;
- defines the investment policy and supervises its implementation (this responsibility may be delegated to the fund administrator).

A pension fund must be managed by a fund administrator, which must be a pension fund management entity (or an authorized life insurance company. These are both subject to pension legislation with regard to employment pension plans. This Management Entity must be established as limited companies with the sole aim of managing pension fundsEGFPs and must comply with a minimum capital requirement, which depends on the pension fund assets managed.

Moreover, a pension fund management entity are responsible for external relationships with public administrative bodies (regulators, prudential, fiscal, etc), as well as members and third parties.

The fund administrator is responsible for the overall management of the pension fund, including the benefit and contribution administration. Fund administrators must be authorized by the Directorate General for Insurance and Pension Funds and registered in the special register of pension fund management entities. In order to obtain a licence, fund administrators must fulfil specified requirements with regard to fitness and propriety, internal organization, minimum capital, etc.

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Employment pension plans: All public- and private-sector employees.

Discrimination in coverage is prohibited but differences in the contribution and benefit structure are permitted for different categories of employees, provided that they are based on objective criteria. Plans may be divided into sub-plans to provide for different categories of employees.

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Sources of funds

Employee contributions

N/A

Employer contributions

Contributions by the employer and employees must not exceed EUR 10,000 8.000 a. This limit includes any contributions made to individual pension plans (see section Types of plans).

Other sources of funds

N/A

Methods of financing

Employment pension plans: Funded on individual basis.

Defined benefit plans use the Projected Unit Credit Method or the Entry Age Method to establish the contribution rate payable over the active lifetime of employees which is sufficient to finance the promised benefits. The calculation of accrued liabilities includes an allowance for the effects of future salary increases on accrued pensionable service and accrued benefits.

Asset management

Employment pension plans: The Plan Control Commission (see section Institutional framework) approves investment guidelines and policies and determines the portfolio composition. Fund administrators must manage the fund assets directly or contract out the asset management through an outsourcing agreement.
Fund assets must be invested in accordance with criteria of security, profitability, diversification and adequate liquidity.

Diversification Limits:

  • At least 70 per cent of pension fund assets must be invested in financial assets negotiable on organized markets (including negotiable derivatives), bank deposits, mortgages and property.
  • Securities and derivatives not traded on a regulated market: max 30%.
  • Real estate: max 30% as a whole and max 10% in one project

Dispersion limits:

  • A maximum of 20 per cent may be in the same undertakings as for a Collective Investment of Transferable Securities (UCIT) traded in negotiated markets;
  • A maximum of 10 per cent may be in securities issued or guaranteed by the same group of companies;
  • A maximum of 5 per cent may be in securities issued or guaranteed by the same entity (in some cases it is possible to extent the limit up to 10 per cent of the pension fund asset for a single issuer);
  • A maximum of 4 per cent may be in securities not traded on a regulated market issued by entities belonging to a single group;
  • A maximum of 2 per cent may be in securities not traded on a regulated market issued by the same entity.

The limits above do not apply to securities issued or guaranteed by the state or its organizations, by regional or local authorities, by equivalent public administrations of OECD countries and by international institutions and organizations of which Spain is member.

 

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Acquisition and maintenance of rights

Waiting period

Employment pension plans: There are no legal requirements.

Waiting periods depend on plan rules but cannot be more than two years.

There is no legal minimum/maximum age for joining a plan.

Vesting rules

Employment pension plans: Employee and employer contributions vest immediately.

Preservation, portability, transferability

Employment pension plans: Upon termination of employment before retirement, a member's accrued benefits or accumulated capital may be preserved in the plan, if it provides for this option, or be transferred to another supplementary social protection vehicle (second or third pillar) as a pension plan (occupational or individual, insurance policy and so on).

Preservation rights must be revalued in accordance with the investment returns of the pension fund management entities in which the rights are preserved (dormant rights may be revalued differently, on the basis of collective bargaining or pension plan rules).

 

Retirement benefits

Benefit qualifying conditions

Employment pension plans: Retirement age is the same as under the social security scheme (i.e. age 67 or 65 years when it is credited 38 years and 6 months of contribution, for men and women). Early retirement is possible if a member is eligible for early retirement benefit under the social security scheme.

The rules of the pension plans may also provide for the anticipated payment of the retirement benefit in the event that the member, irrespective of age, extinguishes his employment relationship and passes to the legal situation of unemployment in cases provided in the Workers ' Statute Law approved by Royal Legislative Decree 2/2015 of 23 October

Members of the occupational pension schemes may have the consolidated rights corresponding to their contributions and business contributions made at least ten years old, if the rules of the plans allow it and with the conditions or limitations established. Exceptionally, consolidated rights may be paid in whole or in part in cases of serious illness or long-term unemployment in accordance with the rules of the pension plan.

Plan rules may permit an advanced payment in case of unemployment at any age due to a retrenchment approved by the labour authority.

If provided for in the plan rules, vested rights may be refunded if none of the qualifying conditions established in the plan rules are met and the member is unemployed or is seriously ill.

 

Benefit structure / formula

Employment pension plans: Defined benefit, defined contribution or hybrid. In individual plans, only defined contributions are allowed.

Benefits may be paid as pensions, lump sums, a combination of the two or payments without regular periodicity. There are no limits with regard to lump-sum benefits. A pension fund management entity may insure pensions through a policy with an insurance company.

Defined benefit plans use the Projected Unit Credit Method or the Entry Age Method to establish the contribution rate payable over the active lifetime of the employees which is sufficient to finance the benefits promised. The calculation of accrued liabilities includes an allowance for the effects of future salary increases on accrued pensionable service and accrued benefits.

The discount rate used in defined benefit plans is limited in accordance with the yield on Spanish public debt. However, in some case it is possible to use another rate of interest linked to portfolio returns.

There are no further legal requirements concerning the benefit structure/formula (other than that the interest rate assumption must be coherent with macroeconomic assumptions, wages and so on).

Benefit adjustment

Employment pension plans: The Plan Control Commission decides on benefit adjustments on a discretionary basis.

Survivors

Employment pension plans: Survivorship benefits may be provided.

The benefit qualifying conditions and benefit structure depend on plan rules.

Disability

Employment pension plans: Disability benefits may be provided.

Eligibility conditions for disability benefits must be the same as under the social security scheme.

The benefit structure depends on plan rules.

Disability benefits are often provided through separate insurance contracts.

Contributions to pension plans may be made in favor of a person with a physical or sensory degree of disability equal to or greater than 65 per 100, psychic equal to or greater than 33 by 100, as well a person with disabilities who have a declared disability Judicially irrespective of their degree.

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All plans: Plan assets must be placed in a Pension Fund approved by the Ministry of Economy. The assets of the Fund are deposited and controlled on behalf of plan beneficiaries and members by a custodian entity appointed by the Pension Fund control commission and are therefore completely separate from the assets of any sponsoring employer or association. The management company appointed by the Pension Fund control commission to administer and invest the Fund's assets must be a registered pension fund management entity (specialist company legally domiciled in Spain) or an insurance company authorised to provide life insurance.

In relation to prudential requirements applicable to pension funds management companies that are treated as IORPs, the Spanish legal framework establishes the following rules for the calculation of the required solvency margin that are provided in article 21 of Real Decree 304/2004, of 20 February, by which approves the regulation of plans and funds of pensions:

On the other hand, the Spanish management entities are not required to comply with capital requirements like insurance companies do, but they have to comply with a minimum capital to operate (EUR 600.000), besides a percentage in terms of the volume of assets they manage.

Solvency in DB plans:

  • Surplus: Plan assets > mathematical provision formed at the end of the year. In this case, the surplus is allowed to be used for reducing present and future sponsor contributions, increasing the solvency margin, increasing benefits or increasing in the vested rights.
  • Deficit : Plan assets < mathematical provision formed at the end of the year. In this case the regulation establishes two mechanisms in order to remove the deficit (it's depends on the rules set in the plan rules):

a. Implementing an amortisation plan: The deficit must be removed at the lastest within 5 years following the date on which the deficit was found.  Under authorization of the DGSFP the amortisation plan can be extended for 5 more years.
b. Reducing member's benefits (proportional way).

If the deficit is > 10 %: the hypothesis used in the technical basis must be reviewed.

Defined benefit plans must be actuarially reviewed every three years. An independent actuary who must be different from the one used in the daily operation of the plan must report on the Pension Fund's ability to meet its liabilities.

Pension fund management companies must submit to the supervisory authority at the beginning of each year its annual accounts and the audit report of both the Pension Fund and the management entity, confirming the compliance with existing regulations.

Prior to the year 2018 there was the same management fees for every managed investment that was 1.50%, however this limit was modified introducing three types of limits depending on the type of investment:

• A cap of 0.85% is applied for fixed-income funds, which means a decrease of 65 basic points compared to the previous limit (1.50%);   
• A cap of 1.30% for mixed funds, 20 basic points less;
• And 1.50% for equity funds (the same limit as the previous one).

In the case of custody fees the limit has been reduced as well from 0.25% to 0.20%.

The Directorate General for Insurance and Pension Funds may, under certain circumstances, take part in the winding up of a plan in order to protect the interests of members and beneficiaries.

Administrative regime of penalties and breaches exists in case of fraud and mismanagement.

Protection of Assets

Employment pension plans: Assets must be held in a pension fund separately from the assets of the sponsoring employer and the fund administrator.

Pension fund assets must be kept by a custodian.

Financial and Technical Requirements / Reporting

Employment pension plans: Assets must be sufficient to cover the accumulated benefit obligations.

Defined benefit plans must maintain technical provisions and meet a minimum solvency margin requirement of 2 per cent of actuarial liabilities (technical provisions).

Defined benefit plans and some hybrid plans must undertake an actuarial review of assets and liabilities every year.

Defined contribution plans which do not provide guarantees must, instead of an actuarial review, have a financial and economic information report prepared by the fund administrator.

Pension Funds Management Entities must submit to the Directorate General for Insurance and Pension Funds at the beginning of each year the fund's annual accounts and an auditor's report on the accounts, confirming their compliance with legal requirements. There is also a special report for each plan covered by the pension fund.

Management Entities must also submit annually and quarterly certain financial information, separately for each pension fund managed.

Whistleblowing

Employment pension plans: Auditors and actuaries must inform the Directorate General for Insurance and Pension Funds about any act or negligence by the pension fund which in their opinion contravenes the law or the fund rules. The Directorate General for Insurance and Pension Funds communicates frequently with other supervisory bodies.

Standards for service providers

Employment pension plans: Custody entities must be credit institutions established in the European Union and authorised to receive deposits or a similar form. Custody entities must be registered in the Public Register of pension fund established by the Directorate General for Insurance and Pension Funds.

Auditors and actuaries must be independent and comply with legally established professional requirements. In addition, their appointment must be notified to the Directorate General for Insurance and Pension Funds.

Fees

Employment pension plans:

Prior to the year 2018 there was the same management fees for every managed investment that was 1.50%, however this limit was modified introducing three types of limits depending on the type of investment:

• A cap of 0.85% is applied for fixed-income funds, which means a decrease of 65 basis points compared to the previous limit (1.50%);
• A cap of 1.30% for mixed funds, 20 basis points less;
• 1.50% for equity funds (the same limit as the previous one).

In the case of custody fees the limit has been reduced as well from 0.25% to 0.20%.

Fees and charges must be communicated to the Directorate General for Insurance and Pension Funds.

Winding up / Merger and acquisition

Employment pension plans: The circumstances under which pension plans may be wound up are legally specified (e.g. if the sponsoring employer ceases activity). The same applies to the winding up of pension funds (e.g. where the approval to establish a pension fund is revoked).

Legal rules are provided to protect members and beneficiaries in the case of wind-up.

The Directorate General for Insurance and Pension Funds may, under certain circumstances, take part in the wind-up process of a pension plan and/or a pension fund in order to ensure the protection of rights.

Bankruptcy: Insolvency Insurance / Compensation Fund

Employment pension plans: There is no requirement for plans to be insured against financial loss, and no compensation fund exists.

Disclosure of information / Individual action

Employment pension plans: management entities have many obligations regarding the information has to be provided to members.

When members decide to enrol to the plan, members must receive information about the pension plan financial system, limit on contributions, sanctions, investment policy and fund rules.

Upon request, management entities must provide to members a certificate of membership, plan rules and the investment policy.

On an annual basis, management entities must send a report to members about contributions they made until that moment and the final value of their vested rights.

On both a half- yearly and quarterly basis, management entities must send a report to members providing information about the evolution of their vested rights, rule amendments, fund rules, profitability, investment policy, fees and charges (included management and depositary fees).

Members may complain to the management entities. If members are dissatisfied with the reply, they may submit their complaint to the Directorate General for Insurance and Pension Funds.

Other measures

Employment pension plans: None.

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Taxation of employee contributions

Employment pension plans:

Employee contributions are tax-deductible up to the applicable contribution ceiling that it will be the lower of the two following quantities:

€8,000 or 30% of the net income of personal work and of economic activities

Taxation of employer contributions

N/A

Taxation of investment income

Employment pension plans: Tax-exempt.

Taxation of benefits

Employment pension plans: Taxed.

There is a tax exemption for the contributions made before 2007. According to this, lump-sum benefits are tax-exempt up to 40 per cent of the cash value of accrued benefits or accumulated capital (only in respect of benefits and contributions made before 2007).

Application of the transitional regime: In the event of a causal event that takes place in the year 2015 and successive years, a maximum period of two years will be available to benefit from the reduction.

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Directorate General for Insurance and Pension Funds: Supervises pension plans, pension funds, insurance companies and pension fund management entities (EGFPs).

The pension legislation defines a set of increments of legal requirements, ranging from minor to major violations, and specifies actions that may be taken by the Directorate General for Insurance and Pension Funds (DGIPF) to correct these increments.

The DGIPF is part of the Ministry of Economy.

Directorate General for Insurance and Pension Funds
Avda. General Perón nº 38, Planta 2ª.
Building "MASTER'S II"

Tel.: (+34) 91 339 70 85
Fax: (+34) 91 339 70 87

http://www.dgsfp.mineco.es/

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