• Escrivá defends his "historic" pension reform and criticizes those who doubt its sustainability

The Government secured on Wednesday the support of UGT and CCOO to its pension reform, which has already been agreed with the European Commission and will see the light in Parliament – after being approved by royal decree-law – with the support of the investiture partners of Pedro Sánchez. The rule, however, will not have the support of the companies -represented by CEOE and Cepyme- nor with that of the opposition, which seems to indicate that the norm is already born with an expiration date.

"This is an agreement for a newscast, for a legislature, until there is a change of partners. No one is happy about these agreements. You and the European Commission are happy, but it is nothing more than a band-aid, you should have been more ambitious, "reproached Ana Oramas, spokesperson for the Canary Coalition in the Toledo Pact Commission, where the minister presented the reform in the afternoon. "The political forces have not had the information in form because tomorrow it is approved in the Council of Ministers, so we ask you to please process it as a bill. This should not be lentils, or you take them or leave them, you have to work with less arrogance and more humility, "he reproached. In the same line was also the Popular Party, which assured that it will modify it if it reaches the Moncloa.

This second part of the pension reform includes measures that increase the sufficiency of the system, such as the guaranteed minimum levels for minimum pensions – which have increased as negotiations progressed due to pressure from the unions – or the additional increase in the gender gap supplement, which in addition to rising annually with the CPI will increase by 10% each year.

In order to 'pay' the cost of these measures, added to those already approved in the first reform (such as the revaluation of all pensions with the CPI), measures are necessary to guarantee additional income, especially given that the Government has repealed the Pension Revaluation Index and the Sustainability Factor, which contained expenditure.

These new measures include the extension of the Intergenerational Equity Mechanism (MEI), a new contribution that goes from 0.6% to 1.2% and extends until 2050, and whose collection will go to the 'piggy bank of pensions'. From 2033, when the system has to spend more for the retirement of baby boomers, it will begin to pull this piggy bank that is now practically empty. Although in the short term it means an increase in costs for workers, the Government assures that the balance in benefits will be positive in the future for them.

A second measure of income is the increase of 38% real in the maximum contribution base. This means that if now only contributions are made for the first 4,495.50 euros of salary, in 2050 it will be quoted for the equivalent of 6,203.7 euros today. The increase in these contributions will entitle you to an increase in the maximum pension but that will be applied with some time lag and will be much smaller, of around 20% real.

Solidarity surcharge: uncapped and perhaps progressive

To this is added that the Government approves the creation of a 'solidarity surcharge', a new contribution of up to 6% (it will start at 1% in 2024 and will increase until reaching 6% in 2045, level at which it will remain since then), which will be distributed at a rate of 1% for the employee and 5% for the company. In the first drafting of the royal decree-law, the Government contemplated that each year in the General State Budget Law, the maximum salary limit on which this surcharge would be applied would be stipulated.

However, in the final stretch of the negotiations the unions have managed to 'scratch' measures that involve an even greater increase in expenses, such as the shielding of minimum pensions, in exchange for tweaks such as expanding the contributions that the Reserve Fund will make – called 'pension piggy bank' – or eliminating that express mention of a possible cap to apply the surcharge.

At the close of this edition, the last draft of the decree did not have any express mention of a ceiling that would determine on what part of the salary this surcharge is applied and the Minister of Social Security did not make any reference during his appearance in Congress. Therefore, it seems possible that the solidarity surcharge of 6% will be applied on the salary bracket that goes from 4,495.5 euros now (6,203.7 in 2050) and until the last euro of salary gain.

"Those wage returns from work above the maximum base at any given time will contribute a specific contribution to the resources system in the form of solidarity social contributions, without the right to greater benefit, which will rise from 1% to 6% in 2045. Since then they will remain at 6%," said Escrivá.

In addition, at the request of the PDeCAT, the minister announced that he is committed to studying the possibility of making this progressive surcharge, that is, that the percentage that is applied will increase as the salary rises, in a similar way to the IRPF.

To these two measures that reinforce revenues, two others are added that, according to the minister, will ensure the sustainability of the system: the separation of sources of financing (already approved in 2021 and which guarantees that the State assumes part of the expenses, called "improper", of the system) and the delay of the effective retirement age.

The reform also includes measures that, according to the Government, are aimed at improving the fairness of the system, such as the reform of the calculation period: until 2044, Social Security will automatically opt for the best option for the pensioner between using the last 25 years or the best 27 of the last 29; and from 2044 it will use the latter option per system.

In addition, the treatment of contribution gaps is modified, an improvement that will benefit women. According to the Executive, a woman who has worked 44 years, from 1978 to 2022, with an interruption of her working life of two years in the financial crisis, would receive today 1,715 euros of pension, while with the new scheme would remain at 1,814 euros, 100 euros more.

The Government gets the numbers

According to their calculations, the MEI will contribute 0.5 points of GDP of revenue; the solidarity quota, 0.1; and the increase in maximum bases by around 0.5 points; sufficient contribution, in its opinion, to ensure the sustainability of the system; despite the fact that the Government calculates that only the revaluation of pensions with the CPI will mean an increase in spending of 3.5 points.

Escrivá assures that with the approved measures, spending on pensions over GDP, which is now at 12.2%, instead of rising to 15% in 2047 – as it would do in the absence of reform – will fall to 12% in 2047 and 10.9% in 2070.

Although Escrivá assures that the system is sustainable, deep down he has doubts, hence he has foreseen what he calls the "closing clause" that stipulates that the Independent Authority for Fiscal Responsibility (AIReF) will prepare every three years from 2025 a report on the sustainability of the system. In the event that pension expenditure over GDP exceeds 15% or there is a mismatch between income and expenditure, the AIReF will make a series of recommendations and the Government of the day will negotiate with the Toledo Pact which are applied. "If they do not reach an agreement, this imbalance will be corrected with additional increases in the MEI," said Escrivá, that is, by increasing the additional contribution that is already in force.

The model does not please the businessmen or opposition parties. "You have thrown in the towel of orthodoxy," reproached María Muñoz, spokesperson for Citizens in the Commission, after recalling that the final reform does not resemble the measures proposed by Escrivá for Social Security when he was president of the AIReF.

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  • European Commission
  • Social security
  • General State Budget
  • Council of Ministers
  • CCOO
  • UGT
  • Pension