Spanish employers could benefit from the introduction of retirement laws encouraging staff to stay in work longer and the growth of flexible working, says Nick Golding
The problem of people living longer and the impact it has on pensions is not just hitting the UK. In Spain, the government is proposing new legislation that aims to encourage employees to work beyond the existing retirement age, which is set at 65 years for both men and women, by increasing state pension benefits for those that opt to do so.
Under these proposals, employees that soldier on beyond the age of 65 years will have their state pension fund increased by 2% of its value per full year of work up until the age of 70 years. However, if an employee has contributed to the pension scheme for 40 years by the time they reach the age of 65, they will receive a higher annual increase of 3% of their fund’s value.
Gonzalo Martinez Coco, consultant, retirement and financial management at Hewitt Associates, explains: “This is a plan that looks to keep people in work for longer, and it should be approved by the government around May 2008.”
The majority of organisations in Spain offer additional pension provision to employees. This is mostly in the form of defined contribution (DC) pension plans, as like in the UK, many employers have closed their costly defined benefit (DB) schemes. According to a survey, Putting benefits into the new millennium,carried out by Towers Perrin in 2005, just 14% of Spanish employers then operated DB schemes.
Pablo Plaza, director at Towers Perrin, says: “Private pension plans are normally DC and they are used to supplement the state plan. Most DB schemes exist in certain industries, such as banking, but, in general, these schemes are now closed to new entrants.”
Increasing in popularity among Spanish employers, however, are flexible working arrangements. Employers are realising that their employees want to manage their own time. They also recognise the benefits of helping staff to find a balance between their work and home lives. “It is an increasing trend to let employees work at home one day a week, for instance, simply to help [them] find a better work-life balance,” says Martinez Coco.
This increase in flexible working opportunities has partly been fuelled by technological advances, that make it possible for more employees to work remotely, and reduce the need for them to visit their workplace and conduct face-to-face meetings. “Flexible working is popular now in Spain. It has grown alongside increased use of the internet in companies. The use of technology has become far more widespread over the past five years,” says Plaza.
Spanish holiday allowances are also generous, as employers have a minimum legal requirement to offer employees 30 days per year, excluding bank holidays. “Most employees have the 30 days, [but] this figure can be increased through negotiations in certain industries. In the banking industry, for instance, staff have more than 30 days,” adds Plaza.
Under the Spanish tax system, each individual benefit is subject to different rules, which can render some far more appealing than others.
However, when it comes to salary, higher rate-tax payers are liable to pay 43% of their income in tax, so some employees prefer to take a portion of their pay in the form of benefits as opposed to actual cash because of the tax savings they can make.
“In many cases, it is far better to receive pay in perks than [as] salary. Some staff would prefer to receive €1,000 [as] something like healthcare as opposed to the actual cash. The majority of benefits are taxed [at a] better [rate] than cash,” says Plaza.
Flexible benefits schemes are becoming more popular in Spain, according to Plaza. Global flex rollouts by multi-national organisations such as EC Harris, for example, could be influencing more Spanish employers to adopt such schemes.
However, the concept of flex is still relatively new to Spanish employees, and it could take some time before flex is embraced and used in the same way as it is in countries like the UK. “Many companies are trying to implement schemes but staff are not used to them yet,” says Plaza EBIf you read nothing else read this…
If you read nothing else read this…
- To encourage more employees to work beyond the current retirement age of 65 years, the Spanish government is proposing to reward employees who work beyond this age by increasing their state pension fund by 2% of its value for every full year that they subsequently work until they reach the age of 70 years. If the employee has completed 40 years of employment at the age of 65 years, they will receive an annual increase of 3%.
- Flexible working arrangements have become more popular in Spain, in line with the development of technology. Most organisations now allow employees to take advantage of practices such as home working.
- Each benefit is taxed differently in Spain, and in many instances, it is more cost effective to take benefits instead of cash, as a higher-rate taxpayer is liable for 43% tax on their income.