The Council of Ministers this Friday has approved for 2019 Another revaluation of pensions of 1.6% and 3% for minimum and non-contributory ones. This increase will take place from January 1 and is included in a royal decree law that will have to be validated in Congress. "Pensions will be revalued in 2019 six tenths more than the government's CPI forecast [ahora en el 1%], so there will be a gain in purchasing power for the first time in years, "said the President of the Government, Pedro Sánchez, at the press conference after the Council.
Repeal of 0.25%
The legal text contemplates the repeal of pension increases of 0.25%. The so-called Pension Revaluation Index was approved in 2013 by the Government of the PP and linked the update of benefits to the evolution of Social Security accounts: as long as the deficit could only rise by 0.25% per year. The Executive of Mariano Rajoy already agreed with the PNV break punctually with their own legislation and raise pensions in 2018 by 1.6% and 3% for casualties. Soon after, the political parties agreed in the Toledo Pact to revalue pensions based on inflation. And now the Government of Sanchez decides that they will go up every year with the average CPI.
Rise of 2019
The Government will raise retirement benefits by 1.6% for next year. And it does that with inflation moderating and closing 2018 at 1.2%. That is, the logical forecasts at this time assume that the CPI will be somewhat below. In addition, minimum and non-contributory pensions will rise again more than the rest: 3%.
Compensatory payment for the CPI of 2018
The 2018 Budgets collected a 1.6% increase in pensions. In the end, average inflation between December 2017 and November 2018 it amounts to 1.68%. With rounding it remains at 1.7%. Which means that there will be a compensatory payment of 0.1% that will be paid before April, probably in the month of February, point out Social Security sources.
A cost exceeding 2,000 million
The payment of 0.1% will cost for the Social Security coffers about 128 million. In addition, the payment will be consolidated and will involve another 128 million in the next year. The revaluations of 1.6% and 3% will mean slightly more than 2 billion additional expenses for the system in 2019.
To offset these higher expenses, the Government will raise the contributions. The maximum bases will rise 7%, above what is usual. And the minimums will increase in line with the increase registered by the minimum wage in 2019 and approved by the Executive in the previous Council of Ministers: 22.3%. The Ministry of Labor estimates that the increase of 7% in the maximum bases will mean an additional income of some 850 million euros. And the 22% will report some 1,500 million more collection. With these upswings, it is intended to fully compensate the cost that will have to link pensions to the CPI next year.
The reforms will be made in the Toledo Pact
Although the Government repeals 0.25%, it leaves open how these increases linked to the CPI are going to be compensated every year. Despite its high social response, 0.25% contributed to correcting the pension deficit. And the increases in contributions will only serve to finance the revaluation of the benefits of 2019, which will also be consolidated as an expense every year. In fact, the Bank of Spain calculates the cost of linking pensions to inflation in 1.9 points of GDP for 2030 and 3.4 points of GDP for 2050. To give an idea, with the current GDP would be an additional 22,000 million euros of spending in 2030 and some 40,000 million in 2050. However, the Executive does not initiate any reform to finance this. It is left to the Toledo Pact to decide on a reform that will adjust the budget hole of Social Security, now located around 17,000 million.