The Experts’ Forum of the Aviva Savings and Pensions Institute feels it necessary that the Government introduce reforms in taxation on long-term savings and pensions products to encourage people to save for their retirement.
- They propose the introduction of specific reforms in taxation to encourage the public to put their cash in long-term savings schemes which will allow them to maintain their level of purchasing power after they retire.
- The Forum has warned of the need to encourage pension savings among the middle classes, who will otherwise suffer a significant downsize in their lifestyle.
The Experts’ Forum of the Aviva Savings and Pensions Institute feels it necessary that the Government introduce reforms in taxation on long-term savings and pensions products to encourage people to save for their retirement. These steps will have repercussions on how well the economy moves forward and will encourage the type of savings that are vital if people are to maintain their purchasing power after they retire.
These are the conclusions from their report “Una mejor fiscalidad para más y mejor ahorro” (A better taxation system for increased and improved saving) an account of the conclusions drawn from the Forum’s last meeting, during which they analysed Spain’s situation with regard to savings and taxation on long-term pensions instruments.
Aviva Institute’s Experts’ Forum assessed the way Spain taxes savings and compared it to that in neighbouring countries, with the intention of making recommendations that would serve as a guide for future reforms in tax incentives on long-term savings.
The Forum states that the latest pension reforms, approved in August 2011, do not make any provision for tax incentive reforms, which would encourage long-term savings. However, the reform does include a reduction in the substitution rate* with the consequent transfer of responsibility to the individual in terms of structuring the savings they need for their retirement.
Besides its savings culture, Spain is also closely tied to real estate investment. The analysis carried out by the Experts’ Forum noted that the constant changes in legislation regarding taxation do not favour fiscal planning or the use of these instruments, and also there is a lack of understanding among the consumers of these types of products. Likewise, assets invested in pension funds in Spain in 2011 only accounted for 7.8% of the country’s GDP. In other European countries the average working population covered by private pension plans varied between 80 and 100%, whereas in Spain it only reached 48%.
Guillermo de la Dehesa, Chairman of the Experts’ Forum, said “it isn’t that Spain doesn’t save, but it needs to save better. Part of its short-term savings, not including targeted or pension savings, should be focussed on long-term savings to generate stability and efficiency in the allocation of resources within our economy.”
* The difference between the amount of retirement pension and the amount of the last salary received before retiring.
Reforms to be carried out on the taxation of long-term savings products:
Aviva Institute’s Experts’ Forum feels that there needs to be a decisive push to encourage people to save for the long-term. It is essential that people are given all the information they need and that the features and nature of current financial products are made clear so that people can decide how much they want to save.
In the opinion of Aviva Institute’s Experts’ Forum, Spain saves a lot over the short-term, but badly over the long-term, investing in products with very poor liquidity such as housing.
- It is essential that the significant tax benefits to long-term saving are defined in a way that is easy for people to understand and that encourage them to save over the long-term, as fiscal instruments to incentivise this type of savings in Spain have not been effective.
- Measures need to be put in place to encourage saving among the middle classes, because if they do not have a private savings scheme, in the future they will suffer a very significant downsize in their standard of living.
- A rethink is needed on how savings are taxed and it needs to be from a neutral perspective, meaning that the tax system ought not, under any circumstances, to distort the real or financial investment decisions of savers.
- It would need to encourage long-term pension savings as a general concept. The forum put forward the possibility of creating a type of “long-term savings portfolio”. This would be an umbrella account that would allow the consumer to make investments in different types of financial assets, enjoying the same fiscal treatment as current pension products, such as pension plans. The customer could buy and sell the various assets with no fiscal penalties whatsoever as long as the resources were kept within this account, only paying tax when their contributions were withdrawn when he or she reaches pension age.
- It would require the very necessary development of Pilar II (collective pensions savings), which would introduce the coordination of saving through company plans. In Spain, employment plans have not been successful so far because of the high substitution rate that still exists with public pensions.
- As regards taxation on yields linked to long-term savings, it would be necessary to uncouple them from inflation and only tax actual savings yields, progressively applying these but always to the actual yield.
- Different treatments need to be established for the savings accumulation phase and the disbursement phase.
- It will be essential to differentiate the two parts of pensions savings: on the one hand the part relating to IRPF (income tax), paying the margin rate of tax and, on the other hand, the part that is the yield from the primary that should be for the tax bracket rate corresponding to the tax on saving.
Further information
Website for Aviva Savings and Pensions Institute
The official website of Aviva Savings and Pensions Institute (http://www.instituto-aviva-de-ahorro-y-pensiones.es/) includes documentation relating to the pensions sector, studies carried out by the Institute and all the information produced by the Forum’s activities (meetings, members’ CVs, etc.).
Under the ‘Foro de Expertos/ Informes’ (Experts’ Forum/Reports) section heading you will find the full report of “Una mejor fiscalidad para más y mejor ahorro” (A better taxation system for increased and improved saving). In this same section, you will also find the report “La reforma de las pensiones públicas” (The reform of public pensions) that the Experts’ Forum drew up in respect of the adoption of the “Ley sobre actualización, adecuación y modernización del sistema de la Seguridad Social” (Law on updating, adapting and modernising the social security system).
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Notes to editors
Opinion of the Aviva Institute’s Experts’ Forum regarding improvements in tax incentives:
- Guillermo de la Dehesa, chairman of Aviva España.
- Ignacio Conde-Ruiz, Lecturer at Madrid’s Complutense University, Deputy Director of the think-tank FEDEA and director of the Fedea- Banco Popular Chair on “Immigration”.
- Juan José Dolado, Professor of Economics, Economics Department at the Carlos III University in Madrid.
- Rafael Domenech, Chief Economist for Developed Economies at BBVA Research and Professor of Economics at the University of Valencia.
- Ángel de la Fuente Moreno, Economist at the Institute for Economic Analysis (CSIC) and lecturer in the Economics and History of Economics Department at the Universidad Autónoma in Barcelona.
- Luisa Fuster, Researcher at IMDEA (Madrid Institute for Advanced Studies in Social Sciences).
- José Antonio Herce, Managing Partner of AFI (International financial analysts).
- César Molinas, founding partner of the consultancy Multa Paucis and Partner and Adviser to CRB.
The Aviva Savings and Pensions Institute is a research and discussion platform set up by Aviva, Europe’s leading life assurance and pensions group. Its main purpose it to encourage discussion on the problem of sustainable saving as well as advising on the two key areas of activities: to help people to understand their financial decisions and to encourage collective collaboration to change consumers’ attitudes towards long-term savings.
The basic pillar of the Institute consists of a forum of experts made up of eight professionals and researchers working in the economics and pensions sectors and chaired by Guillermo de la Dehesa. The Institute’s activities cover three areas of activities: the Forum’s research and reflection work, the creation of regular studies relating to pensions and long-term savings, and developing analysis, help and evaluation tools for the public.
www.institutoavivadeahorroypensiones.es
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