country panel session spain - john hancock financial · country panel session spain 2012 igp...

2012 IGP SeminarPanel Presentation for Spain

2012 IGP Seminar

Country Panel SessionSpain

2012 IGP SeminarBoston, MA USASeptember 11-13

Mr. Juan Fernandez LayosAccount Manager CASER Spain

Introducing Caser

Spanish Social Security Pension System

Funding vehicles:

a) QPP

b) Life Insurance

c) PPSE

Standard Group Benefits: Life, disability and Medical

Spanish Market Trends

Any questions?

Agenda


2012 IGP Seminar

Introducing Caser

Introducing CASER

CASER has been in Spain for more than 60 years offering group life and pension plan solutions. With over 15.000 points of sale and 48 own offices around Spain

Casers' most representative figures:Premiums: €2,778 million ($3.5 Billion)Nº Policies: 5,4 millionNº Clients: 3,5 millionEmployees: 3,339

CASER has been pension fund manager since 1988: Ranks 5th as fund manager (INVERCO)Funds under management: € 4,571 million ($5.7Billion)380 company pension plans


2012 IGP Seminar

Multinational dimension:

CASER is a “top” Insurance Co. in Spain, ranked 5th as Fund Manager,… is not a multinational, but being an IGP Network Partner since 1972

Preferred provider for multinational clients with over 160 pooled plans covering almost 85.000 employees of Spanish multinational subsidiariesProfessional advice – Tailor made products and services, high quality administration providing “one stop shopping”

…not multinational but linked to multinational pool

Introducing CASER & IGP

%8+

2003 2004 2005 2006 2007 2008 2009 2010 2011

(Premiums / million euro)

536,2

820,7

535,4

887,5

611

976,9

752,1

1.137

839

1.272

1.093

1.262

1.423

1.588

1.889

2.111

2.355

1.357

LIFE

NO LIFE1.207

1.191

Growing aboveThe industry average(+8% VS 4,1%)

1.428

1.138

Insurance turnover

1.671

1.107

2.398

2.566

2.778

Most representative figures


2012 IGP Seminar

IncomeEvolutionBefore tax2003 / 2011

(million euro)

2003 2004 2005 2006 2007 2008

11,117,7

29,9

48,8

64,4

77,6

%15+

INCREASEUP 15%FROM THE PREVIOUSYEAR

93,4

2009

115,8

2010

133,0

2011

Most representative figures

Spanish Social Security

The three Pillars


2012 IGP Seminar

Social SecurityContribution

Corporate Contribution

IndividualContribution

1º 2º 3º

Pension Building

Theory 3 (+1) Pillars

Individual perspective

provided by the employees on a individual basis

Private

NOVEDAD

Social Security

+1Law of Promotion of the Personal Autonomy and Attention for

DEPENDENCYPEOPLE

System

of

Public

Social

Prevision

Public

Occupational Schemes

provided by employers as a

“deferred salary”For employees

Retirement

Private

CONTRIBUTIONCONTRIBUTION

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, in accordance with a predetermined table, with different amounts for each earning group

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

% to apply on contribution base Employer Employee Total

General Benefits 23,60% 4,70% 28,30%

Social Security Pension


2012 IGP Seminar

EligibilityEligibility

15 years contributions, including at least 2 years within the last 15 years.

To be 65 years old (It is possible an early retirement if some requirements are fulfilled)

Benefits

If contributions are paid for 35 years: MP = 100% BR

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

Maximum Annual Pension 2011 (for all Benefits) --> 35.320,46 €

Minimum Annual Pension (at the age of 65) --> 10.690,41 €


The Effect of Social Security Pension Ceiling (€35.320,46 €)

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

36000

48000

60000

72000

84000

96000

108000

120000

SalarY

% Last salary replaced by Actual SS



2012 IGP Seminar

Spanish Social Security Challenges

Higher Expectancy of life

Lower Birth Rate

Higher Quality of Life After Retirement


ESPECTANCY OF LIVE, AGE, 1900-2070

0

10

20

30

40

50

60

70

80

90

100

1900 1950 2009 2030 2070

AG

E


?


2012 IGP Seminar

Our old Grandparents


Our new Grandparents

Conclusions:

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, due to the fact that the number of elderly not in the labour force who often need service and care is increasing. (52, 9% of the total population in 2050) and the number of young people paying for the welfare is decreasing.

With this trend, Spaniards must be ready to stay more years in the labour force.



2012 IGP Seminar


What can we do ??

Funding vehicles:

a) QPP

b) Life Insurance

c) PPSE


2012 IGP Seminar

After Nov 16, 2002, any contingencies for payment of retirementpensions, death, or disability benefits must be financed throughinsurance 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

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

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.

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.

All employees with more than 2 years of service must be eligible.

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

Qualified Pension Plan (QPP) Group Life Insurance

Law / Rule

Eligibility

Control Committee

Contribution Level

QPP & Life Insurance : Differences


2012 IGP Seminar

Qualified Pension Plan (QPP)

Employee’s Contribution

Contribution Limit

Vesting Rights

Company and Employees limit contributions:

Employees under age 50: limited to €10,000

Employees over age 50: €12.500 Employee contributions: same limits

Full and immediate, according to law

Employee may do contributions. Typically no employee contributions due to tax inefficient treatment (although they are possible under this financing vehicle)

No limit.

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.

Group Life Insurance

QPP & Life Insurance : Differences

Qualified Pension Plan (QPP)

Company’s Contribution

Tax Treatment for the Company

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

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

In addition, a 10% of contributions can are deductible in Corporate tax.

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

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

Group Life Insurance

QPP & Life Insurance : Taxation


2012 IGP Seminar

PPSE or Social Provision Company Plan was born as the result of the demand from the insurance market of a vehicle to compete against QPP.

PPSE it’s a Clone of QPP with the same tax treatment, Contribution limits, advantages and disadvantages. With only the following differences:

1) PPSE have a legal obligatory guarantee for the contributions of the Employer and Employees, there are two main kinds:

1.a) Traditional Guaranteed interest plus profit sharing.

1.b) Long – Term guaranteed interest based on matching

PPSE

2. 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.

COMERCIAL VIEW

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

PPSE


2012 IGP Seminar

Standard Group Benefits:

Retirement, Life, disability and Medical

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 65.

Standard Group Retairement


2012 IGP Seminar

DEATH DEATH – 2 Types

Widowhood Pension and Orphanhood Pension All based upon a percentage of a death contribution base to SS.

PERMANENT DISABILITYPERMANENT DISABILITY – 3 Types

Professional Total Permanent Disability, Absolute Permanent Disability and 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:Premiums:

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



2012 IGP Seminar

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 (if applicable)

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 a 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 switch the contract, to give a provisional notice to his current insurer (there is a 2 months noticed period)



2012 IGP Seminar

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

Attractive to those who consider Social Security's facilities inadequate and over crowed.

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


2012 IGP Seminar


Group Life Premiums

RANKING TOP 5 INSURANCES GROUPS – GROUP LIFE PREMIUMS 2011

JANUARY - DECEMBER - 2011

Nº Insurance Group

Millions (Euros)Market Share

Consolidated Market SharePremium Growth

Premium Decrease

1 GRUPO CAIXA 710,16 -0,24% 1.001,93 17,96% 17,96%2 MAPFRE 527,73 11,15% 663,90 13,35% 31,31%3 GRUPO CASER 517,54 19,42% 444,67 13,09% 44,40%4 BBVA SEGUROS 458,95 157,99% 602,98 11,61% 56,01%5 GENERALI 354,96 5,47% 698,54 8,98% 64,98%

Source: ICEA Enero‐Diciembre 2.011


2012 IGP Seminar

MANAGING ENTITY WITH >1.000 MILLONS OF FUNDS UNDER MANAGEMENT

QUALIFIED PENSION FUNDSName nº Market Share Funds under

ManagementGroup Funds

B.B.V.A. 282 22,75 7.302.207VIDACAIXA GRUPO 172 18,76 6.020.458IBERCAJA 19 10,30 3.306.319

FONDITEL 44 10,18 3.268.433

GRUPO CASER 140 7,99 2.563.033AVIVA 93 4,74 1.522.409CAJA MADRID 66 3,57 1.145.221BANCO SABADELL 135 3,39 1.087.567

MAPFRE 74 3,27 1.048.750

Source: Inverco datos 1er. Trimestre 2012

Qualified Pensions Plans Assets Funds


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


2012 IGP Seminar


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

Any Questions!


2012 IGP Seminar

Thank you for your attention!

CASER SEGUROS

Juan Fernández-Layos MoroSales Manager

T + 0034 91 214 60 51M + 0034 628 214 214 E [email protected]

country panel session spain - john hancock financial · country panel session spain 2012 igp...

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