What are employment pension plans and how do they work?

Retirement, the longed-for and well-earned rest after decades of work, is a latent concern among the public. In fact, according to a survey on Pensions and Financial Education (2025) conducted by Funcas, 67% of Spaniards are quite concerned that their future pension will not be enough to live free of financial hardships.

However, according to another survey, in this case, the European Pensions Pan-European Survey (Insurance Europe, 2023) it is revealed that, despite this concern, 51% of Spaniards claim that they are not saving for retirement, compared to the average of 39% in Europe.

In this regard, it has been proven that ordinary people need a little push to start planning for their retirement. This is where vehicles such as employment pension plans (EPP) become the ideal option. But what are PPEs exactly?

What are employment pension plans?

Occupational pension plans are collective savings instruments designed primarily to supplement the public pension on retirement, or in cases of disability or death. The goal is to mobilize long-term savings of workers through their company or another professional group so that when they retire the have access to an additional benefit.

Unlike individual plans, which depend on each person's initiative, occupational pension plans (PPEs) are promoted by a sponsor (which can be a company, corporation, or association), and contributions are agreed through collective bargaining or a commitment established between the company and its workforce.

In addition, current legislation requires that all workers with a sufficient employment relationship can access the plan with no discrimination.

To facilitate access for self-employed workers to complementary social security, current regulations include simplified occupational pension plans within the scope of PPEs. These pension plans feature special characteristics, mainly promoted by industry collective agreements or associations of self-employed workers, unions, or professional bodies.

It's important to note that a pension plan is an illiquid product, which means it cannot be freely redeemed unless an exceptional liquidity event occurs, as specified in the plan (such as serious illness, long-term unemployment. This must also be approved by the Plan's Control Committee—the withdrawal of consolidated rights corresponding to contributions made at least 10 years prior). Other exceptional cases may be established by regulations issued to address needs arising from extraordinary situations (such as natural disasters). The contingencies covered by a pension plan include retirement (as determined by the Social Security system or an equivalent situation), permanent disability (total or higher degree), death of the participant, and severe or major dependency of the participant.

What makes it different from other plans?

These are some of the differences compared to individual plans:

• Joint contributions: the company and the employee can make contributions; in individual plans, only the participant contributes. Furthermore, the employer's commitment provides stability to savings and is usually negotiated in collective bargaining agreements. Both receive tax incentives for making an investment. For the worker, the money invested will be deductible in their income tax return, as is the case in individual plans. So for the worker it represents a benefit in addition to their salary, while for companies it represents a deductible expense in corporate tax.
• Employee loyalty: These plans help foster employee loyalty to the company, as they are considered a social benefit.
• Lower costs: when managed collectively, the fees and expenses are usually lower than those of individual plans.
• Additional tax benefits: in addition to the general deduction of 1,500 euros for individual employment plans, workers and companies can avail themselves of an additional limit of up to 8,500 euros in business contributions. That is, a participant making the maximum contribution can deduct up to 10,000 euros from either investment vehicle. Current legislation in Spain also allows, in simplified occupational plans, for a self-employed individual to contribute €4,250 provided the company contributes at least €4,250, which increases the tax deduction up to €5,750.

Types of employment pension plans

The regulations provide for three types of plans, depending on who assumes the benefit commitment:

• Evaluate the stability of the company and the collective agreement: A PPE is a long-term commitment and as such, it's essential to understand the access conditions, the company's contribution percentage, coverage, payment methods, and existing subplans.
• Defined benefit plans: The amount of the benefit the beneficiary will receive is defined (e.g., a percentage of salary or a specific income). Contributions in this case may vary over time to meet that future obligation.
• Mixed plans: these combine the characteristics of defined contribution and defined benefit plans. They can guarantee, for example, a minimum interest rate on the contributions or a minimum benefit and define fixed contributions for other contingencies.

Final tips for assessing an employment pension plan

• Evaluate the stability of the company and the collective agreement: a EPP is a long-term commitment; one should know what the eligibility requirements are, what percentage the company is contributing and what the existing sub-plans are.
• Understand the plan modality: It's essential to know which of the three modalities mentioned earlier best suits each situation and the pension fund to which it is subscribed, as well as its investment policy, applicable fees, and expenses.
• Tax planning: it is advisable to adjust one’s contributions to the available savings margin and to one’s income tax bracket, taking into account the fact that a surrender is taxed as work income.