achievements and future prospects

achievements and future prospects

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Last year the fortieth anniversary of the Basque Social Security Entities Law (EPSV) was commemorated, marking a significant milestone for the region. The Basque Country stands out as the only territory where social security, both at the corporate level and in individual plans, has truly taken root.

The annual report of the EPSV for the year 2023 has recently been presented. The assets of the Social Security of Euskadi have exceeded 30% of the regional Gross Domestic Product (GDP), reaching around 28,000 million euros. Contributions and benefits remain stable, reflecting the maturity of the system, while the number of affiliates remains constant, exceeding one million one hundred thousand, which is equivalent to approximately one pension plan for every two Basques.

To contextualize the relevance of this data, the pension funds regulated by state regulations amounted to 122,000 million euros, representing 8% of the national GDP. This corresponds to 9.5 million accounts of various types of plans for a population of 48 million residents.

What particular elements contribute to success in Euskadi, where half of citizens have pension plans, compared to just 20% in the rest of the country? We could speculate about the influence of privileged taxation. However, although different in its territorial limits, it does not seem to be the determining factor, since structurally it is similar. Neither are business incentives, which are common throughout the country.

I would venture to affirm that the differentiating factor that promoted corporate social security in the Basque Country is the proactivity demonstrated by social agents and the regional government in recent decades. First, by anticipating in 1983 the Law that created pension plans and funds. Second, by extending social security plans to all public employees, the only ones in the country whose contributions are not suspended. Third, by introducing innovative modifications that encouraged the expansion of individual and collective social security plans. Fourth, by incorporating in an agile and early manner the DIRECTIVE (EU) 2016/2341 on activities and supervision of employment pension funds (FPE) IORP II.

It is already a tradition that every time the central government innovates in terms of social security, the Basque Country improves its own regulations. That is why, at the end of February, a Decree was published that regulates preferential EPSVs as a complementary pension model in Euskadi, financed by contributions shared between employers and workers, and prioritizing benefits in the form of income. This model, which was attempted to be designed in Law 12/2022 but did not go beyond the draft, has the main objective of complementing public Social Security pensions.

In addition, the regulator aims to extend GEROA’s successful sectoral employment EPSV model in Guipúzcoa to Vizcaya and Álava. One could even consider as an alternative a single sectoral EPSV for the three historical territories that would take advantage of economies of scale in investments and management.

The Basque government trusts in the generalization of complementary social security from an early age, with shared contributions, a model tested in other countries. Taxation aligned with the collection of benefits in the form of income could consolidate its own and sustainable long-term complementary pension system, aiming for 70% of the active employed population to have an Employment EPSV.

The new Basque Decree also expands assets eligible for EPSVproviding them with broader access to new financial markets and delving into aspects of Sustainable Finance, in line with state regulations on pension funds.

What else could be done? The Behavioral economics and better income redistribution suggest modernizing contribution taxation. For example, instead of the current complicated tax deduction for Personal Income Tax, the Basque government could make direct contributions to social security plans, focused on young people and women. In addition, tangible benefits could be granted to small and medium-sized companies that implement social security plans for their employees. And also specifically promote social security plans for the self-employed.

All in all and in conclusion, the new Decree represents a great advance in the promotion of complementary social security for all citizens, in line with the efforts to strengthen the complementary pension system in the Basque Country.

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