John Müller: Pension and Inflation
It will be a very hard drink for pensioners to suffer this Christmas when they see that inflation rises 5.6% and their pension only 2.5%, less than half. This is the result of the new mechanism for updating pensions approved in Parliament after repealing the one that dated from 2013. But we have not returned directly to the old method: before the reform of the PP, pensions were updated according to the annual variation rate of prices, from November to November. Now, instead, it is done with the average of the monthly interannual rates: remember that in the last two months of 2020 prices fell and remained stable until March when the escalation began
which has taken us since October at a rate of more than 5%.
Most retirees will feel that they have been cheated. It will be of little use to be explained that the new index splits the evolution of inflation over several years, so possibly the rise in 2022 will also be 2.5%. What the Government has failed to do with the electricity market, which is to create a mechanism to cushion the price rises and falls, Minister José Luis Escrivá has quickly achieved with pensions.
It remains to be seen if the so-called 'pay' - the compensation that Social Security must cover for the difference between the expected rise in inflation (0.9%) and the real one (2.5%) - hides the blow.
From a technical and long-term point of view, the new update mechanism does not change much compared to the one that existed before 2013. From the second year of its application -if the calculation system is not modified and inflation begins to fall- , pensioners will begin to recover what they lost. This second condition, that inflation subsides, is in the eaves.
But what is certain is that this first year of the new system, retirees will have to put their brains on the loss of purchasing power and use their savings, whoever has them, to face the loss. A process similar to the one that is taking place with wages and salaries. The difference is that a retiree cannot work more to make up for the loss of income.
It is surprising that neither the unions nor the retiree associations that were so successful in demanding the abolition of the revaluation and sustainability factor approved in 2013 are now respectfully silent.
Inflation is an invisible tax that affects everyone, but especially the passive population because there is always a margin that is not compensated for them. In this sense, the reform of the PP was the only one that guaranteed a real rise when inflation was zero or negative: they always rose by at least 0.25%, which happened in three years (2014-2016). Now, if inflation is zero, they won't go up. [email protected]