Social Security procedures tend to be a hot topic of conversation among business owners, and one that is high up on the list is whether it is better to take out a private pension to complement obligatory monthly payments or to simply increase Social Security payments. As I looked into this matter further, I was taken back to the Law of Urgent Measures for Sole Traders which was approved in 2017.
In this regard, the Federación Nacional de Trabajadores Autónomos (ATA) may have an alternative solution. As we know, most business owners contribute the minimum allowable in their category each month to Social Security, and increase their contributions during the final years of their working lives to secure a better pension. ATA drafted a proposal detailing forty measures to improve business owners’ interests and sent said proposal to the Spanish Government twice; the first time in April and again in October 2018.
Their list of proposals fall under six categories:
- To complement the Law of Urgent Measures by encouraging people to undertake new business ventures within certain collectives and by facilitating new employment contracts
- Social protection and sustainability of sole traders and the pension system
- To combat submerged economy and the misuse of company figureheads
- To reduce administrative hinderances
- To enforce a Penalty System against delays in payment
- Second Chance Scheme
One of the measures this association proposes under the second category, “Social protection and sustainability of sole traders and the pension system”, and suggests the capacity to make voluntary Social Security payments at the start of the tax year. ATA also proposes that sole traders should be able to opt to use any rebates received from their Personal Tax Returns to that end as well as banking products and savings accounts, which would in turn be tax deductible.
This proposal is interesting because as mentioned, the majority cannot afford to contribute at a higher base rate, but if they were able to make a voluntary payment from any extra cash that becomes available, it would increase the base rate during that tax year without affecting their monthly Social Security fee. The more we pay into the national system, the more benefits we see not only when it comes to our pension, but also any leave due to illness, profesional training and unemployment.
As it stands, sole traders can modify their base rate once a quarter so that during their most productive months, they may contribute more.
Since ATA is one of the principal associations to represent sole traders interests, there is always a possibility of being heard by the government and implementing proposals such as these. There is also the added incentive that Social Security would receive funds they would not have under normal circumstances , making this a win-win situation.