Thursday, March 23, 2023

Pensions: Madrid wants to make employers and the wealthy pay

Increase the number of years taken into account, raise both the contributions of companies and the highest salaries, while encouraging the effective age of departures to be pushed back. This is the formula chosen by the Spanish government for its pension reform. The Minister of Social Security and Inclusion presented Friday to the social partners his project which, it seems, has already obtained the approval of Brussels.

Employers and unions have until Tuesday to study the file, but they have already spoken on the issue. The CEOE employers’ confederation rejects a plan “based on a general increase in contributions which will affect all workers, increase labor costs and jeopardize job creation”. This is a proposal “regressive all along the line, because it involves more years worked, more contributory effort and fewer pensions”, insists CEOE.

For their part, the unions have “positively” welcomed the government’s plan, and believe that it will make it possible to “consolidate the pension system, while reducing the inequalities suffered by women”.

Solidarity effort of the highest salaries

The reform prepared by Madrid provides for a flexible calculation system which will allow up to 29 years of contributions to be taken into account, or else to be based on 27 years, by removing the two years which are the least favorable to employees. But the future retiree may also prefer to maintain the scale currently in force, calculated over the last 25 years. In case of doubt, the most favorable discount will be applied.

To face the demographic challenges, in a country where life expectancy is long and the birth rate among the lowest in Europe, Madrid is planning a new solidarity effort on the side of the highest earners, whose contributions are currently capped, with a 1% tax from 2025, which will increase by 0.25% per year to reach 6% in 2045.

Retire at age 67 by 2027

These announcements are the latest step in a pension reform that has been carried out in phases, in consultation with the social partners and with the various political forces, in order to guarantee its approval in Parliament. The overhaul of the system was one of the conditions set by Brussels for the release of the fourth phase of European funds. It is based on a timetable for the gradual extension of working life, which has been in place since 2013, to delay retirement from 65 to 67 by 2027.

The Minister of Social Security, in charge of the file, had already announced in 2021 a new bonus-malus system to discourage early retirement and reward those who continue their activity beyond the legal age.

Intergenerational equity mechanism

At the same time, it has also provided for an “intergenerational equity mechanism”, with an exceptional increase in social contributions until 2050, in order to bail out the pension fund.

Some experts are critical of the device. “Spain must increase its revenue to invest in education, housing or the fight against climate change, but not to avoid adapting the pension system to the new demographics”, estimates the economist José Ignacio. Conde-Ruiz, specialist in the question at the Fedea applied economics foundation.


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