October 22, 2020

The Government prepares more incentives to voluntarily delay retirement


The Minister of Inclusion, Social Security and Migration, José Luis Escrivá, has advanced this Wednesday in the Toledo Pact commission several measures in which his team is working for the next Social Security reform that aims to balance its accounts within this legislature and give “certainty” to the population about the pension system. Among them, Escrivá has advanced that the Government is studying improving and expanding the incentives for voluntary delay in retirement, which in Spain are lower than in other countries, as well as the modification so that the self-employed contribute according to their real income and the transfer of the so-called “improper expenses” of Social Security to other items of the General State Budgets.

The Government will reduce the tax allowance for pension plans and will toughen early retirement

The Government will reduce the tax allowance for pension plans and will toughen early retirement

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This Wednesday was the second appearance of Minister Escrivá in the parliamentary commission of the Toledo Pact, which is finalizing its work to issue recommendations on the future of the public pension system. In July and, especially in September, the commission has accelerated its work to try to reach an agreement shortly, a possibility that they have lowered a bit this afternoon in the PP, whose spokesman Tomás Cabezón has called not to run so as to “not stumble.”

José Luis Escrivá has urged the political parties to reach an agreement now so that the Government begins to reform the system as soon as possible, for example for the revaluation of pensions according to prices next year and to give “certainties” to pensioners, since the Executive has promised to work on the political consensus that comes out of the Toledo Pact.

Based on this agreement, the minister recalled that the Government also intends to reach a social consensus with the unions and the employers, with whom it intends to start the negotiation table in this regard shortly.

Encourage people to keep working

On the basis of the draft recommendations on which the Toledo Pact works, José Luis Escrivá has outlined some of the lines of action that his team is already preparing to advance in the work of legislative reform. “We are working to be prepared, to be able to bring these changes to the Chamber as soon as possible,” he said.

The minister has advanced that the Government would like to start removing some of the so-called “improper expenses” from the Social Security accounts already in the General State Budgets for next year, in order to advance towards the balance of the organism’s accounts. According to the Executive’s forecast, the Social Security deficit will climb to 2% in 2020, from 1.3% in 2019, “temporarily” due to the effect of the pandemic, but the Government’s estimate is that according to go “normalizing” the situation, the deficit will fall again. Without implementing any reform, Escrivá has affirmed that it foresees that the deficit would return in 2023 to levels similar to the current ones, somewhat higher than 1.3%.

Social Security calculates that taking the total of “improper expenses” from the Social Security accounts – such as aid for hiring companies, maternity allowances and administrative expenses of the organization – would subtract about 23,000 million in 2023, something more than the deficit expected in the agency for that date, about 20,000 million euros. For this reason, the so-called “separation of sources” could end the budget hole of Social Security in that year, the minister stressed.

Escrivá has opted for other direct measures on the pension system to guarantee budget sustainability in the medium term and in view of the retirement of the numerous generation of the “baby boom”. As already advanced in June, the minister is committed to penalizing more early retirements, whose model he has criticized for its regressive character. For example, the annual penalty for people who contribute by the maximum base, with higher salaries, is 2% of their pension, while workers who contribute by the average base amounts to 8%. The minister has called for an end to the increase in early retirements, which has been growing strongly since 2014.

On this occasion, the minister has also focused on his team’s plans to reward and further incentivize voluntary delays in retirement. “The system balances us a lot,” Escrivá defended, underlining the great effect on public accounts. The minister stressed that it is an option that is very little exploited and very unknown by the population, which his Ministry intends to improve and spread. The head of Social Security has highlighted that, in Spain, the average annual bonuses for delaying retirement is 3.2%, lower than many of our European neighbors, such as France (5%), Germany (6%) and the United Kingdom. United (10.4%), among other countries.

Freelance contribution according to their income

The contribution of the self-employed, so that they start doing it for their real income and leave the voluntary system, is another of the fronts on which Social Security is already working, in collaboration with the Ministry of Finance. José Luis Escrivá has advanced that both have been working for months to give a “relatively immediate” response to the development of a plan by sections that achieves in a “gradual” way the contribution for real income of the self-employed, with a “sustainable” model over time .

The minister has not wanted to delve into this new contribution formula, since it has not yet been proposed to self-employed groups, but has explained that it would be implemented gradually and that “it will lead to a high percentage of self-employed workers having their contributions reduced. “. For others, it will mean an increase, since the vast majority of the self-employed (87%) contribute on the minimum basis, regardless of their income.

Finally, the minister has once again insisted on his plans to further promote supplementary work pension plans to the detriment of individual pension plans, to which it intends to reduce tax deductions due to their regressive nature, for which they benefit more people with higher income.

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