October 21, 2020

The tax authority rules out a rise in pensions according to the CPI and proposes to apply the sustainability factor

The Independent Authority for Fiscal Responsibility (AIReF) poses a more complicated future for pensions and gives a blow to the demands of pensioners to raise their pensions according to the CPI. The body chaired by Cristina Herrero estimates that in 2050 pension spending could be 14.2% of GDP, which represents an increase of 3.3 points from current levels and one point more than the forecasts that this institution managed a year ago. This AIReF scenario is proposed taking into account that the parametric reforms of 2011 will be developed, “which entail a reduction in spending of 2.9 points of GDP in 2050, and the application of the sustainability factor from 2023, which means a saving of 0.9 additional points of GDP “. If both measures were not applied, pension spending would rise to 15.2% in 2050.

The Government prepares more incentives to voluntarily delay retirement

The Government prepares more incentives to voluntarily delay retirement

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The application of the sustainability factor would mean eliminating one of the main requests of pensioners, who mobilized to ask for an increase in pensions according to the rise in the cost of living. The sustainability factor takes into account other factors such as life expectancy or economic growth and ultimately translates into a decrease in the money that retirees receive. The application of the sustainability factor was scheduled for 2019, but a pact between the PNV and the PP to carry out the 2018 budgets delayed its implementation until 2023.

Among the reforms of 2011, the body proposes an increase in the effective retirement age from 64.1 to 66 years and an increase in the contribution career from 25 to 35 years more in line with the plans of Pedro Sánchez’s Executive. Only two weeks ago the Minister of Inclusion, Social Security and Migrations, José Luis Escrivá, appeared in the commission on the Toledo Pact to report on the Government’s plans for the future reform of pensions and Social Security. The roadmap is to achieve that the effective age at which the population in Spain retires approaches the legal age.

As short-term solution proposals, the tax authority proposes “to close the structural deficit of Social Security, transferring it to those parts of the Administration with sufficient tools to reduce it” such as the central Administration and as a more specific measure to reduce the money allocated to the social contributions for unemployment to dedicate to spending on pensions.

AIReF technicians point out that the cost of social security contributions on unemployment in Spain is 3.3 points higher than the European average, which could equal that cost and that “the State covers this loss of income to pay the unemployment “and dedicate that money to financing public pensions. The tax authority also recalls that the State Public Employment Service (SEPE) “before the coronavirus crisis had a surplus that had been financed not only by contributory unemployment benefits, but also by non-contributory benefits, as well as active employment policies. and bonuses, so we advocate for the separation of sources of income between contributory and non-contributory to be applied, in fact the current regulations that when there is an imbalance of the SEPE must be financed by the State Administration. ”

The supervisory institution calls for the implementation of these measures because, among other things, it endorses that the solution of the public pension system will not come through the private complementary systems. Regarding these private pension plans, he does admit that formulas that have been implemented in other European countries should be studied in order to study how they work within the employment plans or for certain groups.

AIReF has made the expenditure forecasts with a scenario of demographic forecasts where the population in Spain increases to 54 million inhabitants in 2050, while the inhabitants of working age remain above 30 million, thus the dependency rate (the retired population that depends on the working-age population) reaches 53% in 2050. On the other hand, there is a fall in the inflows of immigrants, which in 2019 reached 450,000 net immigrants, to 330,000 persons annually if the current immigration policy is maintained, “one of the most permissive in Europe”, according to AIReF. In addition, the fertility rate, which rises minimally to 1.4 children per woman in 2050, has an influence, insufficient and one of the lowest in Europe, and continued improvements in life expectancy are expected up to 86.8 years.

Despite the fact that there is much uncertainty about the impact of COVID-19 on the economy, AIReF technicians point out that a scenario in which the coronavirus crisis has “structural effects on the economy, would increase spending by 0.7 points from the baseline scenario to 14.9% of GDP and the coverage rate would increase from 53.3% to 55.2% “.

As other risks that could affect these calculations, the tax authority adds “a reduction in the net migratory balance to half of what was expected would mean an increase of 1.9 points of GDP in pension spending, while a greater stagnation of the labor market “With a convergence of the structural unemployment rate to 10% – instead of 7% – it would imply an increase in spending on pensions in 2050, in this case 1.2 points of GDP”.


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