These are the nine reforms in the pension system that the Government has sent to Brussels

Nine reforms of the public pension system. This is what the Government has communicated to Brussels within the ‘file’ on the pension reform related to the European Recovery Plan for the pandemic, for which Spain will have 72,000 million euros in the next three years. The news yesterday was that the Executive did not finally include the extension of the calculation period of the pension to 35 years, as featured in previous drafts, which had received the frontal rejection of United We Can and the unions. However, the package of reforms finally transferred to the Commission includes addressing the extension of this calculation period, with the possibility of excluding some years by the workers, as well as the revaluation of pensions according to the CPI and other less known measures, such as a new factor of “intergenerational equity”.

Escrivá blames other members of the Government for creating a false account about the extension to 35 years of the calculation of pensions

Escrivá blames other members of the Government for creating a false account about the extension to 35 years of the calculation of pensions

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The Government sets a major objective of its future pension reform: to preserve the long-term sustainability of the pension system, preserving the purchasing power of pensioners so that the system fulfills its function of protecting against poverty and at the same time guaranteeing the ” intergenerational equity “. That is to say, that a balance be kept between current pensioners and the young people who will be in the future.

The message that Spain sends to Brussels is one of confidence in the public pension system. The Executive indicates that pension spending, which will increase above all due to the retirement of the ‘baby boom’ generation, is manageable with the appropriate changes, which it will negotiate with the social agents once the political agreement has been reached in the recommendations of the Toledo Pact. These adjustments, which Minister Escrivá intends to approve in two phases throughout the year so that they are in effect in 2022, are the following.

1) Take “improper expenses” from Social Security

This is also known as the “separation of sources of financing”, so that Social Security does not assume non-contributory expenses and allows it to end the deficit it currently has. “The reform consists of the assumption by the State of spending items that are currently paid for through social contributions, limiting the system’s ability to cope with the volume of pension spending,” includes a document on the reform sent to Brussels to that has had access.

The transfer of the so-called “improper expenses” of Social Security has already been initiated in the General State Budgets of 2021, of a total of 14,000 million euros, which is intended to be completed in 2023, when it is expected that 20,000 will have been transferred millions of euros. The Government considers this separation of sources “key” to “rectify the distorted image of the imbalance of the system perceived by citizens” and to “face in good conditions the long-term challenges” of the system.

2) Maintain the purchasing power of pensions

The repeal of the pension revaluation index approved in 2013 by the Government of Rajoy, which caused annual increases of 0.25%, is reported. The Government recalls that if this formula is maintained, a loss of purchasing power of pensioners of 37% is estimated “accumulated in the life of the pensioner”, which it considers “an alarming impoverishment” and warns that no country has a similar model .

Thus, the Executive opts for a new revaluation mechanism that allows guaranteeing the purchasing power of pensions “through a formula that links it to the CPI and simultaneously avoids the need for nominal reductions in the event of specific earnings from purchasing power, due to negative inflation, for example ”. This formula is being negotiated with the unions and employers, and Minister Escrivá has hoped to reach an agreement “in the coming weeks.”

3) Bringing the effective retirement age closer to the legal one

The Executive wants to ensure that the age at which citizens retire (now 64.6 years) is closer to the legal retirement age (66 years in 2021). To do this, it proposes two courses of action, which are already negotiated by the Ministry of Security with the social agents. On the one hand, “make changes in the system of reducing coefficients for early retirement to eliminate distortions, including its regressive nature, and rationalize the use of this modality.” In other words, toughen voluntary early retirement, especially for higher pensions.

Second, “modify the settings of the retirement delay incentives” so that they are more attractive and used. Escrivá is committed to expanding the benefit for each year that a citizen decides to delay their retirement beyond the legal age to retire. “In addition, benefits will be established for companies that keep these older workers and their permanent training will be promoted to improve their employability,” states the document of the package of measures sent to the Commission.

4) “Adapt” the listing careers

It is the reform that insists on extending the period of years to calculate the pension. The Government withdrew from its proposal the express mention of the extension at 35 years, as was present in previous drafts, as this media has been able to verify. But he insists on addressing this expansion to make the system more contributory.

“As the third of the measures that make up the block that aims to deepen the reform of 2011, it is planned to expand and adapt to the current reality of professional careers the period of calculation for the calculation of the regulatory base of the pension, contemplating the possibility of choosing the years to be integrated in the regulatory base progressively over the current ones “, the document states, which also proposes” a review of the procedure for integrating gaps in the professional career “.

The measure “seeks to increase the progressivity and contributory nature of the system by making the retirement pension more reflective of the working life of workers and reflecting the reality of a labor market in which interruptions and gaps are less and less exceptional. ”, The text continues.

The extension of the years that are taken into account for the calculation of the pension in general is estimated to reduce the amount of future pensions on average, but on occasions (and especially if it is allowed to except some years from the calculation) it can lead to improvements in the future pension. For example, workers who become unemployed at the end of their working life and are currently heavily penalized in collecting their retirement, as the document highlights.

“This reform would go in parallel with a review of the current procedure for integrating contribution gaps, which is inappropriate for the most intermittent careers, especially associated with temporary employment,” the text adds.

5) Replace the sustainability factor with another one of “intergenerational equity”

The coalition government fulfills its commitment to repeal the sustainability factor of the 2013 PP unilateral pension reform and takes up the challenge of the 2011 reform, agreed with the social agents, which called for exploring some type of mechanism that had take into account the evolution of life expectancy.

As Escrivá announced this weekend, the document sent to Brussels is committed to “a new mechanism that seeks to preserve intergenerational equity”, by which “the fundamental parameters of the system will be subject to periodic review depending on the evolution of the demography and the balance between the employed population and the pensioner population ”.

Thus, the evolution of life expectancy will be taken into account, but also other “complementary indicators” that “free the younger generations from an adjustment caused by the arrival of retirement age” of the ‘baby boomers’. Escrivá hopes to be able to bring this new element to Parliament, after negotiating it with the social partners, in the second half of the year.

6) Quotation of the self-employed by their real income

The gradual implementation of a new contribution system for the self-employed “based on the income from the economic activity carried out”, as recommended by the Patco de Toledo. The Government intends to “correct the distortion generated by the power of choice of the contribution base” current of the self-employed, by which 85% of the group contributes by the minimum base and “that supposes a reduction of resources for the system and a low level of protective action for the self-employed ”.

The Executive notes that the reform will be launched “gradually.” The Ministry of Social Security already sent the self-employed a first proposal in this regard in October, which left the vast majority of the self-employed with the same or lower contribution level and represented an increase for those with higher incomes. For the moment, your proposal is not affected by the self-employed. Minister Escrivá responded yesterday that he trusts that the reform can be in force in 2022, even if it is for a first group of self-employed.

7) Modification of the maternity supplement

Reconfigure the current maternity pension supplement approved by the Government of Rajoy in 2016, which has been invalidated by the Court of Justice of the EU for being discriminatory for men. The Government intends that the new supplement compensates the cost of caring for children by parents, whatever their sex, although it is already known that it will benefit above all women who are the ones who today interrupt their careers the most labor for this reason.

“The new supplement is based on the analysis of the contribution trajectories to identify which of the two parents was most affected in their contributory career by the birth of each of the children, foreseeing that in the absence of a particularly damaged parent, they will be recognized the complement to the mother ”, collects the document.

8) Boost supplementary pension systems

It is intended to review the complementary pension systems to “promote occupational pension plans in the field of collective bargaining, preferably the sectorial one.” The Government has already begun to do so in the 2021 Budgets, as well as reducing the tax advantages of individual pension plans, which is also notified to Brussels.

“The approval of a new legal framework is expected to promote the promotion of employment pension plans through the creation of a freely assigned public promotion fund that allows coverage to groups of workers without employment plans in their employers or self-employed. , or integrate employment plans that so decide “, reflects the text.

9) “Adjust” the maximum contribution base

The Executive recalls the increase, national and international, of inequality, “which even translates into differences in life expectancy.” This inequality has also been reflected in salaries in recent decades, with an increase in the highest salaries, which requires a “gradual adjustment of the maximum contribution bases”. That is, its increase so that higher wages contribute more to Social Security. Currently, the maximum contribution base is situated at 4,070.10 euros.

The Government indicates to Brussels, however, that this adaptation of the maximum bases “must be concurrent with a modification of the maximum pension so as not to affect the contributory nature of the system.”


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