Country Panel Presentation: Spain · Country Panel Presentation: Spain 2016 IGP Regional EMEA Seminar Windsor, May 24 -26, 2016 . Mr. Juan Fernández - Layos . Sales Manager . CASER

© International Group Program

Country Panel Presentation: Spain

2016 IGP Regional EMEA Seminar Windsor, May 24-26, 2016

Mr. Juan Fernández - Layos Sales Manager CASER Spain

1

This presentation was exclusively prepared for the attendees of the 2016 IGP Regional EMEA Seminar. None of the contents of this presentation may be copied or disclosed to any other party or used for any other purpose than the one mentioned above without IGP's prior written permission.


Key Topics

Background Information

Country and Company Info &

Background

Social Security

Private Practice Legislation

2


Introduction

• Area: 506 km2

• Capital Madrid

• 17 Autonomous Region

• Gross National Product: 1.081.190€ *

• Population: 46,5

• Foreign Population: 4,7

• Life Expectancy: 81,57 years

• Active Population: 17,866

• Unemployment Rate: 22,5%

• VAT: 21%

• Inflation: -1,6%

Spain

* Millions of €


Introduction

• CASER has been in Spain for more than 60 years offering group life and pension plan solutions. With over 12.000 points of sale and 48 own offices around Spain and 2,3 million of clients.

• CASER' most representative figures: Total Premiums: 1,289 million€ Non Life: 829 million€ Life: 460 million€ Mathematical Provisions: 4.741 million€ Employees: 3,200

• CASER has been pension fund manager since 1988: Funds under management: 1,490 million €

CASER


Introduction

• Multinational dimension: CASER is a “top” Insurance Co. in Spain, ranked 5th as Fund Manager,… IGP Network Partner since 1972

‐ Preferred provider for multinational clients because is leader in provision of employee benefits – over 160 pooled plans covering almost 85.000 employees of Spanish multinational subsidiaries

‐ Professional advice – Tailor made products and services, high quality administration providing “one stop shopping”

‐ … not multinational but linked to the multinational pool

CASER


Key Topics


Social Security

Summary of Social Security

Benefits


6


Social Security Contribution

Corporate Contribution

Individual Contribution

1º 2º 3º Pension Building

Individual perspective

provided by the employees on a individual basis

Private

NOVEDAD

Social Security

+1 Law of Promotion of

the Personal Autonomy and Attention for

DEPENDENCY

PEOPLE

System

of

Public

Social

Prevision

Public

Occupational Schemes provided by employers as

a “deferred salary” For employees

Retirement

Private

Theory 3 (+1) Pillars


Summary of Social Security Benefits

• Social security contributions are calculated on the basis of the actual monthly salary or daily wages for 11 different earning groups

• These bases are subject to a floor, the group's minimum salary or wage, and to a contribution ceiling The maximum annual base for all categories now reaches 3,642 € (monthly) and 43,704 € (annually).

• (3.642€/month) in accordance with a predetermined table, with different amounts for each earning group

Contributions



• The contribution is the result of applying the percentage established for each contingency to the "contribution base" of the employee

Contributions

Contribution Base Rate Employer Employee

Social Security 28.30% 23.60% 4.70%

Unemployment 7.05% 5.50% 1.55%

Guarantee Salary Fund 0.20% 0.20% 0.00%

Professional Development 0.70% 0.60% 0.10%

Total 36.25% 29.90% 6.35%



• As from 1/1/2013, the age for entitlement to a retirement pension depends on the age of the individual and accumulated retirement contributions paid during the individual’s career.

• The age requirements are:

67 years or,

65 years if prove 38 years and 6 months of contributions

Normal retirement age will gradually increase from 65 to 67 years over the period 2013 – 2027.

Eligibility



• If contributions are paid for 36 years: MP = 100% BR

• If contributions are paid for 15 years: MP= 50%BR

• Maximum Annual Pension 2011 (for all Benefits)--> 35.941,42 €

• Minimum Annual Pension (at the age of 65) --> 10.988,60 €

Benefits


Summary of Social Security Benefits Effect of Social Security Pension Ceiling (35.941,42 €)

0% 20% 40% 60% 80% 100%

36000

48000

60000

72000

84000

96000

108000

120000

SalarY

% Last salary replaced by Actual SS



• Higher Expectancy of life

• Lower Birth Rate

• Higher Quality of Life After Retirement

Challenges


0

10

20

30

40

50

60

70

80

90

100

1900 1950 2009 2030 2070

AG

E

?

Summary of Social Security Benefits Life Expectancy 1900-2070


Summary of Social Security Benefits Our old Grandparents…


Summary of Social Security Benefits Our new Grandparents...



• The major time bomb ticking away in Spain as well as in the rest of the western world is a demographic one

• The welfare reform is a necessary measure in Spain. Indeed, the number of elderly not in the labour force who often need service and care is expected to increase to 52,9% of the total population in 2050. On the other hand, the number of young people paying for the welfare is every year decreasing

• With these trends, the Spanish must be ready to stay more years in the labour force than today

Conclusions


Summary of Social Security Benefits What can we do ??

• Think Globally • Act Locally • Panic Internally



Labour Under Control Knowledge


Key Topics


Social Security

Private Practice

Type & Level of Benefits / Survey

Data / Plan Design/

Taxation / Benchmarking / Administration/

Trends

Legislation

20


Customary Private Employee Benefits

• QPP (Qualified Pension Plan)

• Non Qualified. Insurance contract

• QPP PPSE

Funding vehicles:



• Life

• Disability

• Medical

Standard Group Type Benefits



• After Nov 16, 2002, any contingencies for payment of retirement pensions, death, or disability benefits must be financed through insurance contracts, pensions plans or both:

• Change to external funding now legally required to: Avoid that pension commitments are affected in case of employer’s

insolvency. Companies can focus on their core business. Resources are transferred to Insurance Companies and Fund Managers

with high expertise.

Externalisation Law


QPP & Life Insurance Differences

Qualified Pension Plan (QPP) Group Life Insurance

Law / Rule

• Pension Plan Law, Royal Decrees 1/2002;

• Pension Plan Rule, Royal Decrees 304/2004

• Insurance Law, Royal Decrees 6/2004

• Insurance Rule, Royal Decrees 297/2004

Eligibility • All employees with more than 2

years of service must be eligible.

• Employer has full freedom to “discriminate’‘ based on objective criteria.

Control Committee

• Implementation entirely negotiated by employees representatives and the company.

• Supervises the Plan • Number of votes on 50/50 basis

• Implementation: no negotiation is required.

• Plan is managed entirely by the company.

Contribution Level

• Legislation allows different contribution levels to be set in the same plan (e.g. varying by salary levels). However, the Control Board must approve it.

• No requirement except those imposed by general labour legislation.




Employee’s Contribution Employee may do contributions • Typically no employee contributions due to

tax inefficient treatment (although they are possible under this financing vehicle)

Contribution Limit

Company and Employees limit contributions may not exceed 8.000,00€ of annual tax income

• No limit.

Vesting Rights • Full and immediate, according

to law

• Depends on the tax treatment (at the company’s decision): • If premiums are not taxable (not imputed)

for employees, vested rights design is at the company’s decision (full flexibility).

• If premiums are considered as taxable (imputed) for employees, they are fully and immediately vested.




Company’s Contribution Tax Treatment for the Company

• Contributions, within the limit, are fully tax deductible,

Depending on the imputation of contributions:

• not imputed: deferred corporate tax deduction until the employees’ gets the benefit ( retirement, disability or death).

• Imputed: immediate deduction in corporate tax

Company’s Contribution Tax Treatment for Employees

• Company and employee contributions, within the limit, are fully tax deductible, according to law

Depending on the imputation of contributions:

• Not imputed: no tax implication.

• Imputed: the contribution is an additional tax income and increases the taxed earned income without any deduction.

Personal contributions are not deductible


PPSE

• PPSE is a Clone of QPP with the same tax treatment, Contribution limits, advantages and disadvantages.

Introduction


PPSE

• PPSE have a legal obligatory guarantee for the contributions of the Employer and Employees, there are two main kinds: Traditional Guaranteed interest plus profit sharing Long-Term guaranteed interest based on matching

• PPSE works like an insurance contract, so it is easier to implement than a QPP, because it does not need a supervisory commission like QPP. Governed by the employer only Commercial view:

‐ Would be a good instrument for small companies where there is not strong trade union and that are looking for a conservative investment for their employees savings.

Differences


Standard Group Retirement

• 59% of companies provide retirement benefits

• Most of them are Qualified Pension Plan

• 70% of the companies have all the employees eligible to join the plan.

• 57% of the companies define benefits on the base salary only.

• 83% of the companies provide a defined contribution plan, 17% a defined benefit plan.

• The Defined Contribution is typically between 4% and 8% of average base salary.

• Normal retirement age in the plan is moving from 65 to 67 age.

Trends



• Life

• Disability

• Medical

Standard Group Type Benefits



• Death – 2 Types Widow(er)’s Pension and Orphan’s Pension All based upon a percentage of a death contribution base to SS.

• Permanent Disability – 3 Types Professional Total Permanent Disability Absolute Permanent Disability Major Disability All based upon a percentage of disability contribution base to SS.

Standard Group Life & Disability



• 81% of companies provide life and disability insurance benefits.

• 70% of the companies have all the employees eligible to join the plan.

• Life insurance plans cover from one to three year’s annual base salary (increase depends on managerial level)

• In principle the life insurance benefits is paid as a lump sum.

• Premiums: The employer can deduct the premiums as expenses. The employee pays income tax for the premium (salary in kind)




• Profit Sharing Local Dividend Formula: X% (Y% – Claims)

‐ X% = % Depends on the number of insurers, minimum of 25 insurers ‐ Y% = 100% Premium - Company expenses - Broker expenses (in case) ‐ Claims: Only take in account covers of death and disability (not accidental

covers)

Example: ‐ Company with 600 employees, 8% company expenses, 7% broker expenses: ‐ 75% ( 85% Premiums – Claims)




• Standard contracts administration Annual premium payments in advance Renewal Date: 1st January 1 report per year highlighting contract composition for following year Modifications based on contract additions, leavers, made annually Mandatory that contract signed be in Spanish Mandatory in order to switched the contract, to give a provisional

notice to his current insurer (there is a 2 months noticed period)




• In Spain, all insured employees, family members of the same household, are entitled to hospital and medical benefits (no minimum contribution period required)

• Attractive to those who consider Social Security's facilities inadequate and overcrowded

• Very good tax treatment: The company can deduct the premiums as expenses. For the employee the premiums are not considered as tax income up

to 500 € per year for the employee, wife and children under 25 years of the same house hold.

Standard Group Medical



• 63% of the companies provide medical benefits.

• Typically the company does pay a premium only for the employee (63%), and not or partially for the partner and dependants. For senior executives 76% of the companies pay for the whole family.

• The monthly premiums for the employee ranges from 45€ to 55€.

• Cover includes: Reimbursement of 100% of services within the network of contracted

doctors and hospitals. Reimbursement of 90% of services outside the network up to certain

limits.

Standard Group Medical



• Completed the externalization process

• Mature market, with a few actors and a very difficult access

• Pricing market

• Generous local dividend

• Administration Complex and specialized

• Decreasing margins

• Tendency to negotiate renewal premiums with the purchasing departments

Market Trends



• Tendency to a worldwide negotiation through Pooling

• Captives

• Up front premiums

• Tendency to a worldwide appointment of broker

• Consultants active actors

• Tendency to charge Fees against commissions

Market Trends


Key Topics


Social Security

Private Practice

Legislation

Claims Prevention & Claims

Management/ Consorcio de

Compensacion de Seguros/

39


Claims Prevention & Claims Management

• The Social Security Mutual Insurance Companies for accidents and occupational accidents and diseases (non-profit organizations, supervised by the Social Security) Covers accidents, occupational diseases and temporary disability benefits.

• The contributions exclusively made by the employer, not counting contributions by either the employee or the Government, although are considered as Social Security Contributions.

• This Mutual are very active offering Claims Prevention & Claims Management and for example offer a voluntary free annual medical exam to all the employees of their mutual partners.


Consorcio de Compensacion Seguros (CSS)

• The Consorcio de Seguros TAX is mandatory in Group Life Policies, This government institution cover possible extraordinary risk like the folowing ones:

The consequences of war and operations or acts of a similar nature as

terrorism, rebellion, sedition and riots. Actions of the Armed Forces or the Security Forces in peacetime

Accidents caused by earthquakes, volcanic eruptions, flooding and other physical or meteorological phenomena of an extraordinary nature.

The consequences of a nuclear reaction or radiation or radioactive contamination.


A Different View of the Spanish Crisis

Grant Thornton Spain:

www.youtube.com/watch?v=XUFMxmIoFRc

http://www.youtube.com/watch?v=XUFMxmIoFRc





Thank you for your attention! Key Topics We Discussed:


Country and Company Info &

Background

Social Security


43

Claims Prevention & Claims

Management/ Consorcio de

Compensacion de Seguros/

Type & Level of Benefits / Survey

Data / Plan Design/

Taxation / Benchmarking / Administration/

Trends


Benefits


www.caser.es

Contact Info

Juan Fernández-Layos

Sales Manager

+34 91 214 60 51 [email protected]

CASER

Documents

Country Panel Presentation: Spain · Country Panel Presentation: Spain 2016 IGP Regional EMEA Seminar Windsor, May 24 -26, 2016 . Mr. Juan Fernández - Layos . Sales Manager . CASER