Social partners back proposed reform of Social Security Fund
Published: 8 July 2007
On 24 April 2007, the government and the social partners agreed to reform the law regulating the Social Security Reserve Fund. The organisations involved include the Spanish Confederation of Employers’ Organisations (Confederación Española de Organizaciones Empresariales, CEOE [1]), the Spanish Confederation of Small and Medium-sized Enterprises (Confederación Española de la Pequeña y Mediana Empresa, CEPYME [2]), the Trade Union Confederation of Workers’ Commissions (Confederación Sindical de Comisiones Obreras, CC.OO [3]) and the General Workers’ Confederation (Unión General de Trabajadores, UGT [4]). This fund was set up as part of the Pact on pensions in April 2001 to meet the future needs of the social security system with regard to contributory benefits (*ES0106244F* [5]). The fund holds the surplus income from the social security system.[1] http://www.ceoe.es/webceoe/ceoe/carrusel/index.html[2] http://www.cepyme.es[3] http://www.ccoo.es/[4] http://www.ugt.es/index1.html[5] www.eurofound.europa.eu/ef/observatories/eurwork/articles/undefined-industrial-relations/pensions-agreement-signed
In April 2007, the government and the social partners reached agreement on the draft reform of the Social Security Reserve Fund. Based on the July 2006 agreement to reform the social security system, the fund reform has received the support of all the social partners. The parties agree that this is a step towards the consolidation of the pension system following the tendency of other European countries to diversify investments and to outsource management tasks.
On 24 April 2007, the government and the social partners agreed to reform the law regulating the Social Security Reserve Fund. The organisations involved include the Spanish Confederation of Employers’ Organisations (Confederación Española de Organizaciones Empresariales, CEOE), the Spanish Confederation of Small and Medium-sized Enterprises (Confederación Española de la Pequeña y Mediana Empresa, CEPYME), the Trade Union Confederation of Workers’ Commissions (Confederación Sindical de Comisiones Obreras, CC.OO) and the General Workers’ Confederation (Unión General de Trabajadores, UGT). This fund was set up as part of the Pact on pensions in April 2001 to meet the future needs of the social security system with regard to contributory benefits (ES0106244F). The fund holds the surplus income from the social security system.
Background and aim of reform
Based on the Agreement on social security reform of 13 July 2006, the fund’s reform had become necessary due to the significant growth of the fund in the last few years. According to figures for February 2007, the fund’s total assets stand at €40,335 million which corresponds to 4.14% of gross domestic product (GDP). The aim of the reform is to encourage the fund’s management to be more flexible in order to combine safe investments with greater yields through risk diversification.
Implications for investment policies
The main measures introduced by the reform affect the fund’s investment policies: currently, almost all investments are concentrated in Spain’s public debt and in other European countries, such as France, Germany and the Netherlands. The volume of assets that are assigned to variable yield investments, securities issued by private organisations, stocks and other types of financial shareholdings have been increased. However, the reform puts a limit on variable yield investment to ensure that it does not threaten the purpose for which the fund was created, namely to maintain its ability to deal with possible deficits of the social security system.
Under the reform, the task of managing the investment portfolio can be outsourced, and it will be put out to tender to groups of financial and insurance companies. The investment criteria adopted will prevent the exercise of political rights and the appointment of members of the boards of directors in the companies in which shareholdings are held. The criteria will also take into account the principles of social, economic and environmental responsibility. The agreement reinforces the participation and consultation of the social partners in the regulatory development of the law through the tripartite and joint monitoring commission of the Agreement on social security reform.
In addition to regulating the investment criteria, the reform also establishes how the fund may be used. Whereas previously the fund could be used to cover any deficit of the social security system, the new law only allows it to be used to pay contributory pensions when the need arises. The trade unions’ suggestion to use part of the social security surplus to improve contributory pensions has thus been ruled out.
Reactions to new measures
The reform of what is known as the ‘pension piggy bank’ is the first reform which all of the social partners support – for example, the 2001 agreement was not signed by UGT. Moreover, the latest reform is unanimously considered to be a step towards the consolidation of the social protection system. Nevertheless, this reform has been criticised by trade unions such as the Basque Workers’ Solidarity (Euskal Langilek Araudia, ELA) because it represents another step towards the privatisation of public funds, and it fails to take into account the competences of the autonomous communities (comunidades forales) of the Navarre and the Basque regions with regard to social security.
Joan Arasanz Díaz, QUIT, University Autònoma of Barcelona (UAB)
Eurofound recommends citing this publication in the following way.
Eurofound (2007), Social partners back proposed reform of Social Security Fund, article.
