Final race to reach an agreement in the first block of the pension reform. Still “it is not closed”, they emphasize from the different fronts of the social dialogue, with several “fringes” still to close, as they recognize in the Ministry of the Social Security. But the pact is very close, with the bulk of the measures already agreed upon in the absence of its final wording, as the minister responsible for the reform, José Luis Escrivá, has explained in several interventions. Predictably, it will be closed in a matter of “days”, although it is not believed that it will even be ready for the next Council of Ministers.
A ‘check’ of up to 12,000 euros, 4% more pension or a mixed formula: the proposals to delay retirement
CEOE sources trust that the last differences will be bridged very soon, but they insist that “the leak” this Friday taking the agreement to El País for granted It has angered the bosses a lot. “There is still no agreement and to say that it is a setback, a loss of confidence at the table.” However, businessmen hope that the negotiation of the legal text, “very complex”, will end on the right foot.
This is how the final stretch of a very tough negotiation path is faced, in which the bosses came to lose their grip at some point. In recent days, the three parties to the social dialogue seek to agree on a common legal text that has been reached after including several guarantees demanded by unions and employers, especially in relation to early retirement and income from the Security system Social.
What is addressed in this first package of the pension reform? More than initially anticipated by the Ministry. Several issues are added to the repeal of the IRP of the PP reform of 2013 – that is, the annual increases in pensions of 0.25% -, which is replaced by the new revaluation mechanism according to the CPI as recommended by the Pact of Toledo, and the incentives and disincentives to delay the effective retirement age.
Among the most notable additions, the commitment to repeal the sustainability factor of the PP of 2013 within a year is included, thus annulling the two key elements of Mariano Rajoy’s pension legislation. Later, the intergenerational equity mechanism will have to be negotiated that the Government has committed to Brussels.
In addition, it recovers the pension safeguard clause of the 2011 reform, without having to be extended year by year as in previous years, and the contribution commitment of all the self-employed (even those who do not charge) is added within a period of three months. Of course, with aid to companies in the form of bonuses, at least initially. A commitment is also made to equalize the conditions of widowhood pensions for common-law couples to those of married couples within a period of six months.
Early retirement and maximum pension workers
One of the focuses that has most concentrated the negotiation has been early retirement, which the Government intends to discourage. Escrivá has defended his intention to delay the premature departure of workers, penalizing more the first two months in which you can access voluntary early retirement and improving the rest, but he also announced that he wanted to tighten the early retirement of workers with higher wages and the right to the maximum pension.
The minister has defended that the current penalty system is “unfair” and “regressive”, by penalizing less the early departure of employees with higher remuneration. At present the following situation is generated: a worker with a very high salary – who is going to receive the maximum pension in the future – retiring prematurely involves a penalty of around “2%” per year. On the other hand, for a worker with a medium pension, for example, retiring early causes an annual cut of 8%.
Why? Because at present, the reducing coefficients are applied on the pension regulatory base and there is a wide margin between the maximum contribution base (4,070 euros per month in the General Scheme) and the maximum pension (2,707.49 euros per month in 2021). Thus, people with salaries well above the maximum pension, when they apply these reducing coefficients to their base, in practice end up retiring early with a more limited cut in the pension. “Of 2%” instead of the 8% per year that applies to the rest, Escrivá has encrypted on numerous occasions.
The minister thus intended to apply the pension reduction coefficient on the amount of the pension, rather than on the regulatory base, to ensure that the same percentage applies to everyone.
Unions and employers rejected this approach by Escrivá and recalled that workers with high wages are already penalized when the maximum pension is “capped”. Thus, they have contributed more to the system than they later receive as a pension, for which they asked that this consideration be taken into account.
Finally, the parties have reached an agreement – which has yet to be specified in the legal text – with several guarantees for workers with these high wages. It is accepted that this penalty is equalized, but progressively over the next decade and – very important – only once the maximum pension is increased. In other words, for this higher penalty to be applied, the maximum pension on which to apply it (and the maximum contribution base) must also be raised. The end result, explain sources of social dialogue, is to equalize the exit penalty among workers, but without losing more employees who are entitled to the maximum pension, taking into account their contributions to the system.
Greater access to involuntary early retirement
In addition, the parties have finally agreed to expand the people with the right to involuntary early retirement, to which reduction coefficients will be applied that will be equal or somewhat more advantageous compared to current legislation, they indicate from the social dialogue. Finally, for people who are laid off this year, the new retirement rules will not apply. This is a new pension safeguard clause, designed above all to give peace of mind to people who are fired at the end of their career in this year of crisis due to the pandemic and who have little margin to plan their retirement.
In short, with the guarantees achieved and the disincentives on the table, the penalties do not increase as much as the minister intended. For common workers who are not going to receive the maximum pension, the reduction coefficients are tightened in the first two months (24 and 23) to access early retirement, but they are lowered even after month 22. The intention is to delay even if this premature departure is two months, which according to Social Security has effects in aggregate terms. Finally, regarding workers entitled to the maximum pension, the highest penalties must be matched to the increase in the maximum pension.
On the other hand, to contribute to this delay in the effective retirement age, a consensus has been reached the highest award for delayed retirement (beyond the legal retirement age), as well as the restriction of forced retirement.
More income to pay for pensions
Another key to the negotiation has been to increase Social Security resources to pay for pensions in the coming years. The Government has insisted that pension spending in Spain is not so excessive compared to other European countries, with data that do not reach 12% of GDP in our case and figures that reach 14% and 16%, in France and Italy, respectively. The question is how income is balanced to meet this expense.
This chapter highlights the commitments reached, stable over time, regarding the so-called “separation of sources”. In 2021, almost 14,000 million euros were already transferred that paid Social Security in expenses that were not contributory and that have come to be paid with taxes instead of social contributions. This transfer will continue in the coming years. In addition, other expenses will be added, for example, contribution aid to companies, which will be paid out of the Budgets and not the Social Security coffers.
On the other hand, annual transfers from the General State Budgets to Social Security will be guaranteed to pay pensions, which is expected to allow spending on this social protection to be met even at the most critical moments for the system, with the retirement of the baby boom generation. This support from the Budgets, if the amount corresponding to the separation of sources is added, will mean about 21,000 million euros per year.
The reinforcement of financing will also be supported by social contributions. This first package does not collect them, it only mentions one of them: the contribution of the self-employed based on real income. Although the sections are not broken down at the moment, ranging from 90 to 1,200 euros per month in the initial proposal of the Ministry, it is reflected that this gradual transformation will take place. The intention is to apply it from 2023.
For later there is the debate on the increase of the maximum bases, a thorny issue for the employers and that will be addressed later. The result, which is expected to be reflected in the coming days, goes through an agreement that encourages later retirement, but based more on rewarding delay than on penalizing departures more.