How to Adopt Pension Auto Enrolment in Spain?

Auto Enrolment is a success story in British economic sustainability. Discover in this article how it can be implemented in Spain through employment pension plans, promoting savings and financial stability for employees and companies.

1. Does Auto Enrolment Have a Future in Spain?

The Spanish public pension system and its sustainability are constantly under debate. Why? The answer lies in the Spanish pension model: the pay-as-you-go system. This means that contributions from active workers are used to pay the pensions of retirees.

Intergenerational solidarity is only sufficient for the pay-as-you-go system to work if there is a balance between contributors (workers) and beneficiaries (retirees). The current demographic situation in Spain is not favorable—while life expectancy is higher, we are having fewer children. Additionally, Spain's high unemployment rate reduces the number of workers contributing so that retirees can receive their pensions, further demonstrating the need to reform this pension system.

However, in the funded pension system, where each worker contributes for themselves, contributions generate a fund for their future individual pension. In these cases, the intergenerational solidarity we discussed in the pay-as-you-go system does not exist. And contributions can be made not only by the worker but can also involve their employer.

A system in which multiple actors contribute to the worker's retirement progressively increases accumulated retirement savings. This is how the Auto Enrollment system established in the United Kingdom makes it mandatory for the company to enroll the worker when they start their working life. This automatic enrollment system for employment plans requires the creation of a contributory pension system between employer and worker.

This approach allows creating a culture of retirement savings, something that Spaniards have not prioritized due to dependence on the public pension system, which has generated a false sense of confidence.

2. What Can a Company Do If It Wants to Apply Auto Enrolment in Spain?

There is no Auto Enrolment model as such in Spain. In the United Kingdom, companies are required to enroll their workers in an employment pension system when they enter the labor market, but workers have a period to opt out. They can even stop contributing at any time, leaving the system. To be clear, Auto Enrolment refers to the process of "mandatory enrollment" in an employment pension plan.

This same year, we have seen something similar in Spain—the obligation for companies to enroll their employees in an Employment Pension Plan in the case of the Construction Sector. However, workers do not have the option to unilaterally opt out of this system; they must be enrolled mandatorily and permanently.

Therefore, in Spain this social security instrument can be implemented through employment pension plans. A practice that has been adopted in large companies through their own Company Agreements, which provide for the possibility of offering the employment pension plan to their workers. Instead of automatic enrollment, workers are generally offered the possibility of joining the pension plan, receiving company contributions as long as they also make their own contributions.

According to the Department for Work and Pensions (DWP), automatic enrollment of workers in the United Kingdom has achieved that only less than 10% of workers subsequently leave the pension plan offered by the company. Without a doubt, the flexibility to leave this benefit is a guarantee for the worker who, if they do not wish to continue with contributions, can voluntarily renounce the social benefit. However, it goes without saying that the relevance of this benefit increases over time thanks to joint contributions, which makes this savings system an essential part of the work environment and a highly relevant social policy once it penetrates the market massively.

3. How to Achieve Auto Enrolment Adoption Among Spanish Workers Through Employment Pension Plans?

The change in the UK pension system was driven by national authorities that from 2012 progressively pushed large companies first and subsequently small companies to join an employer social security system. However, in Spain, the mandate has recently begun and is being implemented by sector.

Setting aside the size or resources that companies have, there are a variety of principles that help ensure that a pension plan offered by a company is successfully adopted by its workforce:

• Savings visibility: A tool that facilitates employee access to check the status of their savings is essential for adopting the company's new practice. It is appropriate to present this in advance so that the worker has the information under control from the first moment, without generating anxiety about not knowing where their money is.

• Process clarity: It is important to differentiate between the contributions the company makes on behalf of the worker as a social benefit and those the employee makes as flexible compensation. Additionally, communicating this transparently to the workforce so it is easy to understand the implications on their paycheck.

• Contribution portability: It is important to emphasize the flexibility of being able to transfer saved money if an employee is no longer linked to a company. This provides greater room to freely choose the custody of their savings.

At Arca, we have focused on maximizing the client experience, both for companies and employees, to facilitate all this and more. If you have ever tried to implement an Employment Pension Plan at your company, you probably don't fondly remember the thorny path you had to walk. A path that today causes 7 out of 10 companies that want to implement an employment pension plan to abandon the attempt. This is part of Arca's reason for being—making it easy and transparent to open and manage an employment pension plan with the lowest fees for savers thanks to passive management.

Schedule a free demo and we'll show you how to start offering employment pension plans to your team in just 7 clicks.

Additionally, thanks to our work with the best payroll software and accounting firms, you can further optimize your team's compensation without it being a burden for you.

It has never been easier to offer your own social security system to your workforce. As we like to say from this side, you have nothing to lose in trying—hop on the Arca and save the species!