Spain’s pension plan reforms in 2022 (Act 12/2022) revolve around modifications to Spain’s existing pension laws (Regulation of Pension Plans and Funds) and serve two purposes. The first is to promote company-orientated savings schemes by creating two new instruments complementary to retirements, such as the Open Public Promotion Employment Pension Funds (FPEPP) and the Simplified Occupational Pension Plans (PPE Simplified). The second is to simplify current pension plan categories to help unify Associated Pension Plans (low development level) with individual and company retirement plans. The changes came into force on July 2, 2022, but the reductions in company Social Security payments linked to employer contributions to occupational pension plans are not applicable until January 1, 2023.
Public Promoted Occupational Pension Funds (FPEPP)
- Each FPEPP will be administered by a Management Entity with the assistance of a Depositary Entity. Several PPFPs may be set up.
- Its public promotion will not imply the guarantee of the preservation of the value of the contributions made to the Pension Plan, nor of the assigned profitability.
The following Pension Plans may be integrated into these funds:
- Simplified Pension Plans
- Pension Plans that meet the defined contribution modality in the retirement contingency
A common digital platform will be used to administer the plans, and they will be governed (as a subsidiary) by the regulations that are generally established in the Law on Pension Plans and Funds.
Simplified Occupational Pension Plans
This plan type can be integrated into an Open Public Promotion Employment Pension Fund, or a Privately Promoted Employment Pension Fund. They can be promoted by:
- Companies are included in sectoral agreements linked to collective bargaining.
- Public administrations and public, commercial companies.
- Associations, federations, confederations or unions of associations of self-employed or self-employed workers, trade unions, professional associations.
The specifications will be common for all companies or entities integrated into the same Simplified Plan, and they will be governed (as a subsidiary) by the regulations established for Joint Promotion Pension Plans.
Personal Income Tax Law Modifications
The new law modifies certain articles of the Personal Income Tax, Company tax, and General Social Security Law. These amendments enter into force from January 1, 2023.
For employees, current limits of €1,500 are maintained for Individual Pension Plans increased by €8,500 when the increase comes from company contributions, but certain incentives are established for medium and low incomes that, in certain cases, may make contributions higher than those of the company, e.g., the worker may contribute more than the company does with limits that are established in function of the company contribution, provided that it is less than €1,500.
When a company’s contribution is higher than €1,500 euros or when the employee obtains a work annual income greater than €60,000, the employee can only contribute the same amount that the company contributes (there is no incentive).
Corporate Tax Law Modifications
A new deduction has been introduced in the full quote of Corporation Tax of 10% of Company contributions to Occupational Pension Plans imputed in favor of employees with gross annual remuneration of less than €27,000.
In the case of workers with salaries equal to or greater than €27,000, the deduction will be applied proportionally to the business contributions that correspond to the maximum limit of the annual fixed remuneration of €27,000.
Modification of the Social Security Law (LGSS)
Company contributions paid to company pension plans will not contribute to Social Security, with a maximum limit of €115 per month per worker (€1,380 per year).
This is an advantage and a valuable saving for companies since it allows them to exclude from the calculation the contribution base for common contingencies, which determines the most relevant part of the business quota to be paid into Social Security. This is a capped but relevant amount of the business contributions paid to the pension plans.