Spending on pensions has soared by no less than 36% and retirees earn 307 euros more per month since the increase in their pension was linked to the evolution of the Consumer Price Index (CPI). This is the conclusion drawn when analysing the latest payroll released by the Social Security, corresponding to this month of December, with which the system paid in the same period of 2017, just before the decisions of successive governments linked the increases in these benefits to inflation.

Specifically, in December 2017 the monthly pension payroll amounted to 8,881 million euros and the average retirement pension stood at 1,071 euros. Six years later, public spending exceeds €12.120 billion per month, equivalent to 11.5% of gross domestic product (GDP), and retirees earn €1,378 on average. In other words, pensioners cost Social Security about 3,240 million euros more each month because, with the link to inflation and also due to the retirement of workers with higher salaries, the average pension has climbed by 307 euros.

It was Mariano Rajoy's PP government that buried its own revaluation formula that limited the increase in pensions to 0.25% when the system was in deficit by agreeing with the PNV on an increase linked to inflation in 2018 in exchange for the support of the Basque nationalists for the Budget. From then on, successive PSOE executives, first alone and since 2019 in coalition with Unidas Podemos, applied a transitory system of maintaining purchasing power, with compensatory payments when inflation exceeded estimates (the so-called paguilla). Until last year, when the reform approved at the end of 2021 came into force, which establishes that pensions will rise each year based on the average inflation of the previous year.

Thus, for 2024 the Government will approve a pension increase of 3.8%, which is the result of the average CPI recorded between December 2022 and November of this year. In this way, the average retirement pension will climb by another 52 euros per month, to more than 1,430 euros, which is 734 euros more per year than in 2023 and up to 360 euros more than in December 2017. At the same time, minimum pensions will experience a larger increase, of between 5% and 7%, which will reach up to 14% in the case of widow's benefits with family dependents.

The recently appointed Minister of Social Security, Elma Saiz, stressed that, thanks to the reform approved in the social dialogue under the leadership of her predecessor, José Luis Escrivá, "for the third consecutive year the Government of Spain protects the purchasing power of our pensioners". But this extraordinary protection in a context of galloping inflation is not going to come free for companies and workers. In fact, in order to pay for it, as well as to finance the retirement of the baby boom generation, the government is going to implement a new generalized increase in labor costs.

Rising labor costs

The figures have been put in black and white by the Ministry of Social Security in the order by which the legal contribution rules for next year are developed. Specifically, the maximum contribution bases will rise by another 5%, from the current 4,495.5 euros to 4,720.5 euros. This increase is equivalent to an increase of 3.8% linked to inflation and an additional 1.2 points due to the surcharge imposed on workers who earn higher salaries to pay for the rebound in pension spending until 2050.

The economic report prepared by Saiz's team quantifies that Social Security expects to collect an additional 590 million euros due to this increase in the maximum bases. And it also reveals that the collection by the Intergenerational Equity Mechanism (MEI), which all workers pay to cover the pensions of baby boomers and which next year rises from 0.6% to 0.7%, will soar in 2024 by no less than 35%, to exceed 3,690 million euros.

In total, the Ministry projects an increase in the collection of social contributions in 2024 of 7.8% compared to this year, which implies that it will be close to 167,000 million thanks, to a large extent, to the rise in labour costs. And this does not take into account the impact of the increase in the minimum interprofessional wage (SMI) on the minimum contribution bases, since the Government has not yet set how much this wage reference will be raised because it has failed in its attempt to close a pact with the social partners before the end of the year.

In the meetings held to date, the Ministry of Labour, which is responsible for this negotiation with the social partners, has proposed a 4% increase in the minimum wage, to 1,123 euros in 14 payments. But the unions are demanding at least 5%. Meanwhile, the employers' association has been open to signing an increase of 3% plus an additional 1% in the event of a deviation from inflation, but has conditioned its signature on the Government transferring this increase in prices to public contracts, a reform that, for now, the Ministry of Finance rules out.

  • Pension
  • Inflation
  • Social security
  • Elma Saiz