Friday, December 3, 2021

Europe Agreement for pensions & Investment Activity of insurance

 Europe Agreement for the calculation of pensions

Spain and the European Commission sign the demands that force to review the calculation of pensions to receive European funds

Brussels is calling for an extension of the period used to calculate pensions as a condition for receiving recovery funds, and it must be done before the end of 2022.

Calculation of pensions The 70,000 million euros that Spain receives from European funds, to recover from the coronavirus crisis, require a series of labor and pension reforms aimed at making the system sustainable. These reforms are included in a commitment document signed by the European Commission and the Government of Spain on 08/11/2021.

The Operational Agreement, the contract for the implementation of the Spanish recovery plan signed by the Government and the European Commission, sets for the end of 2022 the entry into force of the adjustment of the calculation period, extension for the calculation of the retirement pension.

Other agreements signed in this document are:

– Increase the maximum contribution bases and, progressively, the maximum pensions. (Must be approved in the fourth quarter of 2022)

– Raise pensions in 2022 according to the CPI. (enters into force in January 2022)

– Replace the sustainability factor with the solidarity mechanism. (Must be effective January 2023)

Calculation of pensions The replacement of the sustainability factor by the new international equity mechanism (MEI) was already approved on November 22 in Congress and establishes an increase in contributions of 0.6%, for 10 years, assuming the company by 0.5% and the worker by 0.1%. This measure seeks to re-endow the Reserve Fund with social security, known as the currently exhausted "pension piggy bank".

However, the approval to raise pensions according to the CPI by 2022 implies an extra cost of 5,000 million Euros when an increase in collection through the MEI (intergenerational equity mechanism) of only 2,800 million euros is expected.

How does this increase in years affect the calculation of the pension?

It should be borne in mind that the increase in years to be computed for the calculation of pensions is already a measure applied in past reforms, with a progressive increase from 15 to 25 years that is expected to culminate in 2022. Now it is intended not to leave the increase there, but to continue increasing the contribution period progressively up to a maximum of 35 years.

The increase in the years to be computed to calculate pensions can mean, for most workers, a reduction in the retirement pension since the logical thing is that the contribution bases rise throughout the working career.

This is a measure contemplated previously and of which there were already drafts that estimated an average reduction in pensions of 6.3%, with the self-employed being the most affected since they would suffer a reduction of up to 10%. This average decrease would not affect all workers equally, being able to benefit those who at the end of their life are unemployed, if the option is finally approved that the worker can choose the years for the calculation between his entire working career.

Calculation of pensions Milestones, objectives, indicators and timetable for monitoring and implementation relating to non-repayable financial support contained in the agreement signed with the EU. – Extract from the signed agreement

Europe agreement for the calculation of pensions

In accordance with Article 24 of Regulation (EU) of the European Parliament establishing the European Recovery and Resilience Facility, once the milestones and objectives agreed and indicated in the Recovery and Resilience Plan have been completed, Spain shall submit a duly justified request to the European Union to receive payment of the corresponding financial contribution.

The investment activity of insurance

The investment activity of the insurance is as important as the insurer, the regulations oblige to respect the European prudential framework (Solvency II) to guarantee the investment with adequate levels of security, offering the insured the certainty of their coverage and contributing to social welfare.

The insurance activity,the main mission of the entities, responds to people in times of special uncertainty or economic need derived from personal or material mishaps. This appetite for stable, solvent and long-term investments makes us institutional investors that benefit society and contribute to its financial well-being.

In the case of Spain, insurance investments amount to 27.49% of GDP

Our investment strategy

España, S.A. invests its assets in accordance with the principle of prudence established in Article 132 of Directive 2009/138/EC, in a manner consistent with the nature and duration of its life insurance obligations, and with the ultimate objective of preserving the capital and solvency of the Company in the long term.

The investment portfolio is mainly concentrated in public debt of the Kingdom of Spain,also maintaining a portfolio of properties for exploitation in the form of

lease and to a much lesser extent a portfolio of corporate fixed income and equities of companies that enjoy a high capacity to meet their payment commitments and maintain and increase their dividend in the long term.

These investments are consistent with the profile and duration of the Company's life insurance obligations, and are adequately diversified from a geographical and sectoral point of view, contributing positively to the medium and long-term performance of the investment portfolio.

Investment management is conservative and focused on the long term,keeping assets in the portfolio with the intention of receiving a safe and growing income stream for many years. Therefore, short-term variations in the market prices of assets in the portfolio are considered irrelevant for management purposes, with the continued maintenance of their ability to continue generating being more important.

Sustainability of investments

As an insurance company that markets pension products such as Insured Pension Plans and Business Social Security Plans,our Company is also subject to the application of Regulation (EU) 2019/2088, of November 27, 2019, on disclosure of information related to sustainability in the financial services sector.

As a family business and responsible, our Company is managed in the long term with criteria based on intergenerational solidarity and in line with the long-term character and capital guarantees of the classic life insurance it subscribes to. Therefore, our Company is a fully sustainable business project that continuously monitors the sustainability factors and risks that may affect it, both in its field of direct action and in relation to its investment activity.

In this regard, as indicated, our Company's investment portfolio is concentrated in public debt of the Kingdom of Spain which by definition is a very safe, sustainable and socially responsible investment. In addition, the Company passively manages its investment portfolio, with a very long-term time horizon. Therefore, the sustainability risks of the portfolio are insignificant, and are generally taken into account from a mainly qualitative point of view by evaluating the ability of portfolio companies to continue generating stable and growing profitability in the long term.

The investments made by the Company are of little relevance in relation to the size of the companies invested, so the Company's investment activity does not have an appreciable impact on the risks and sustainability factors of its investments. On the other hand, in general our Company does not participate in the management of investee companies and does not develop an activist investment policy in relation to their voting rights. For these reasons, our Company does not closely monitor the possible negative impacts that its investment decisions may have on the sustainability factors of the invested companies, being, as already indicated, the investment portfolio very concentrated in public debt of the Kingdom of Spain.

All of the above favors a healthy and prudent management based on reputational excellence and the long-term vision that are typical of a fully sustainable family business.

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