The Pension reform On the verge of becoming a reality. The agreement between the Ministry of Integration, Social Security, Immigration, unions and employers is “imminent.” Minister Jose Luis Escriva had reiterated it this week and the previous week: there are only the details, the technical aspects and the finalization of the legal text, but basically they are already in harmony.
“We are days away, weeks away … I hope I don’t understand my fingers. We are already discussing very specific details about the standard text,” the minister said at a press conference on Thursday.
If everything progresses as planned, the signing of the agreement could become official within the next week, which will lead to the issuance of the Fifth Law in which the government negotiates with social dialogue, after the new extension of the Temporary Employment Regulation Files (ERTE), which has protected hundreds of thousands of Workers are being laid off amid the pandemic.
Meanwhile, Yolanda Diaz’s Ministry of Labor and Social Economy is negotiating Repair work With the same social agents, that is, with the Spanish Confederation of Business Organizations (CEOE), the Spanish Confederation of Small and Medium Enterprises (Cepyme), Workers’ Committees (CCOO) and UGT. Although this agreement doesn’t look very close, the commitment also requires it to be approved before the end of the year.
The main changes that will be brought about by the pension reform, which have been negotiated for months, will include a new mechanism that ensures that pensions The assessment will be done with CPI, So that retirees do not lose purchasing power; Greater disincentives for early retirement and late payments, as well as a new quota system for self-employed in installments.
Later, there is a second set of measures, among them agreeing to raise the bases for maximum contribution, abolishing the sustainability factor and everything related to the pension calculation period. Here are all the actions to be expected to be included in the “impending” agreement:
Linking pensions to the index in a new formula
So as not to lose pensions purchasing power Year after year, it is suggested that it be reassessed with CPI. Specifically, on January 1 of each year, pensions will be raised according to the average inflation of the previous year. In the event that it is negative, there are various proposals, but the idea is that it does not incur any loss. At the same time, an analysis of this method is adhered to every 5 years.
Thus, the reassessment index introduced by the 2013 Popular Party Reform was canceled, as it implies a near freeze of pensions and the consequent loss of purchasing power.
Where it is explained: In fix 2a from Component 30 From the recovery plan.
Expected Date of Action: Before the end of 2021.
Raise the retirement age
In Spain, the statutory retirement age (normal age) is 65 years and 10 months and the average age at which Spaniards retire (actual retirement age) is 64.6 years. In other words, residents stop working earlier than they should, or the government planned, especially since life expectancy is much higher. In addition, Spaniards are retiring earlier than in other neighboring countries, which is something the ministry wants to change, and align both, to slow the growth of pension spending and also to confront the youth with a less burden in the coming decades (generational balance).
Of course, all this is on a voluntary basis, without changing the legal retirement age: “It is always done with incentives, The legal age has not changedMinister Escriva mentioned this Friday.
Likewise, he faces the challenge of deconstructing the myth that the longer the population retires, the greater the youth unemployment: “There is ample evidence that increasing the participation of the elderly does not harm but rather increases employment opportunities for young people. In one of its presentations to the press, Social Security says that countries with the highest population activity rates near retirement age have lower unemployment among young people.
Where it is explained: In fix 2b from Component 30 From the recovery plan.
Expected Date of Action: Before the end of 2021.
Discouraging early retirement
The voluntary early retirement framework has also been reformed in order to bring the actual retirement age closer to the normal legal age again. The ministry asserts that early retirement should be “an exception and not a common form of retirement.”
In Spain, today, those who retire early are those with higher pensions. Data on voluntary early retirement indicates that in 2020, the largest group of early retirees were those with a guaranteed pension of 2,100 euros, which is significantly higher than the rest of the groups.
Today, there are already pension disincentives, but the results are “bad”, as the ministry puts together, which considers that “there is a wide margin for improvement.”
For this reason, and with these new penalties through changes in early retirement transactions, the aforementioned section aspires to achieve a major change in the system that causes a large number of workers to delay their retirement.
Where it is explained: In fix 2b from Component 30 From the recovery plan.
Expected Date of Action: Before the end of 2021. Early retirement in cases of layoffs for this year will in no way be penalized.
Late retirement bonus
Escrivá asserts that 90% of retirees do not know how their pension could improve if they continued to work for a few months or a few more years. In addition, it realizes that Spain rewards less than neighboring countries for workers who decide to extend their working life (now offers a discount of between 2 and 4%, compared to 4-12% in Portugal, 10.4% in the United Kingdom. And 6% from Germany. And 5% from France).
This is why it plans measures such as companies not paying social security contributions to these workers and improving the incentives that now exist, such as paying up to 12,000 euros per year in the case of a maximum pension or improving all pensions by 4% for each year of delay with a one-time payment. If successful, it would provide for Social Security and the employer, and lead to a better pension for the worker.
It is a new system that, according to the aforementioned administration, “makes permanence in employment more attractive to those workers who can and wish to continue working,” and they are looking again for the same purpose as with the previous measures.
Where it is explained: In fix 2b from Component 30 From the recovery plan.
Expected Date of Action: Before the end of 2021.
Self-employed: a new quota system by income group
The goal is to get the self-employed to contribute what they earn, so that this has a positive effect on their pensions, for which the Ministry of Social Security and the Ministry of Finance instituted a “comprehensive reform”. From a system Self-confident. Currently, 36% of retirees in the private system for self-employed do not reach the minimum pension threshold.
For this, Section A. 13-department system Which he considers is especially relevant for those whose income is below the minimum wage. The self-employed will be able to choose and adjust their contribution base several times throughout the year (after which the Treasury will request or return the difference).
With regard to negotiations for the inclusion of self-employed workers according to real income, Escriva indicated Friday that he hopes to achieve this in the coming months, so it is not clear that this will be decided in the framework of the agreement. Which is expected to be signed next week. The minister insisted that with this system, 2 out of 3 self-employed would contribute less than they do now.
Where it is explained: In fix 3 of Component 30 From the recovery plan.
Expected Date of Action: The idea is to approve the law in 2021 and implement it gradually from January 1, 2022, gradually over a period of 9 years.
Stop assuming incorrect expenses to balance it out
It is the more technical part of the procedure within the following pension agreement. There is a series of expenses that Social Security faces but does not match, such as childcare and maternity allowance, among others. Getting rid of them will lead to the elimination of the ministry’s deficit, leading to a more appropriate balance to face the demographic challenge, which at the same time would give a more transparent view of the state’s situation. In this way, the “distorted image of the disorder perceived by the citizens”, which “generates panic and uncertainty for retirees and the population as a whole,” is corrected.
This is what the government also calls “separating sources of financing”, which has already taken some steps towards the state budget for 2021, but will continue until 2023, until this balance is achieved in the budget.
Where it is explained: In fix 1 of Component 30 From the recovery plan.
Expected Date of Action: From 2020 to 2023.
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