Social Security Minister José Luis Escrivá appears to have stepped back from completing the third and final phase of the pension reform plan as the current legislative term winds down. The reform package still features several controversial elements, and three milestones remain to be settled: adjusting the calculation period, shaping future pension growth, and presenting solid data to Brussels to prove that reforms enacted since 2021 will sustain Social Security through 2050. The risk is clear: if Brussels is not convinced, Spain could face a penalty, potentially cutting European fund allocations by as much as 2.5 billion euros, according to Spain’s own projections corroborated by European experts. Escrivá insists the penalty will not come to pass and that the government will resolve the outstanding issues. He reiterated in Barcelona that Brussels will not be violated nor the Recovery Plan abandoned. The European Commission has not confirmed the minister’s most optimistic projections yet.
How to compensate for a 50,000 million gap
Based on calculations submitted to the European Commission, reform measures tied to the Partido Popular’s pension changes would require reforms that boost GDP by about 3.7 percentage points, today roughly 50,000 million euros, to keep the plan on track for 2050. Expanding pensions with the Consumer Price Index would add about 1.4 points to spending by 2030 and around 2.7 points by 2050, roughly 36,000 million euros in today’s terms. Removing the Sustainability Factor would also contribute, adding roughly 13,300 million euros in today’s valuation.
Extending the real retirement age: could it save up to 1.6% of GDP?
Among the measures aimed at closing the GDP gap in 2050, voluntary delays in retirement age are under consideration. The goal is for the actual average retirement age to align more closely with the legal threshold of 67. Brussels views this plan with caution. Escrivá’s forecasts suggest savings of 0.2 to 0.4 percentage points of GDP in 2030 and 1.1 to 1.6 points in 2050, though the European Commission’s services see savings landing at the lower end of that range.
New Capital Mechanism: one point of GDP in income?
The government proposed replacing the Sustainability Factor with a new Intergenerational Equality Mechanism (MEI), which adds a 0.6 point surcharge on social contributions. In effect, the MEI would neutralize the projected savings of one percentage point of GDP tied to the Sustainability Factor. The European Commission remains wary, warning that removing the sustainability factor could lead to a substantial rise in public spending over time. Spain and Brussels have agreed to extend the MEI to 2050, with a start date in 2030, in an effort to address those concerns.
New self-employment regime: could 0.6 points of GDP come from higher income?
The self-employed regime poses a delicate challenge. Escrivá has signaled that contributions should reflect real income, a shift not yet fully embraced by Brussels. The government argues that a gradual shift toward taxable income on a real basis would increase total contributions. A preliminary European Commission report from February supported the pace of the third funding tranche, though the tax-collection effects of reforming the private self-employment regime remain less clearly documented. Officials continue to cite a potential 0.6 percentage point gain in GDP, while Brussels remains cautious.
Extending the pension calculation period to 30 years: neutral impact?
The ministry has proposed lengthening the retirement calculation period from 25 to 30 years, with the possibility of excluding two years of a worker’s career. This change is expected to have a neutral effect on collection in many cases. Although unions have expressed concern, some internal assessments from those groups suggest the approach could stabilize medium-term accounts. Studies indicating a reduction in pension amounts when the calculation period is lengthened exist—Bank of Spain estimates show 8.2% lower pensions with a 35-year span—but excluding the worst two years could still be beneficial in certain scenarios. Escrivá claims many retirees would gain, while critics on the left argue neutrality fails to advance sustainability in line with Brussels expectations.
Higher contributions from top bases: could 0.5 percentage points of GDP rise?
Escrivá’s strategy includes raising the current maximum contribution base, presently around 4,495.50 euros per month, gradually over thirty years. The idea would add to any CPI-driven rate increases. The government’s plan proposes lifting the maximum pension as well, though to a lesser extent, with potential gains of 15% to 25% depending on finalized details reported by El Periódico. Official estimates suggest this move could add about half a point to the system’s revenue, while Brussels has reportedly raised questions about a surcharge on the increased maximum basis.
Fourth disbursement of funds: will the full 10,000 million arrive?
Under the Recovery and Resilience Plan, Spain was set to complete the reform sequence before 31 December 2022, with milestones including extending the calculation period, raising maximum bases, and delivering a comprehensive calculation report to ensure sustainability since 2021. Escrivá asserts agreements will be finalized soon, but a complete reform package has yet to be presented, pending social, political, and European consensus. Once finalized, Spain could seek a fourth payment from European funds, potentially totaling 10,000 million euros if Brussels is satisfied with milestones. If not, the amount could be reduced.
Possible penalty: up to 2.5 billion euros at stake
On February 21, the European Commission outlined its criteria for partial payments when milestones in Recovery Plans are not met. The overall transfer total, 69,720 million euros in Spain’s case, is divided by the number of milestones (415 in the plan). The unit value determines the penalty, but the commission notes that penalties can be multiplied by up to five depending on relevance. Given that Brussels has yet to evaluate the sustainability milestones, a hypothetical penalty for non-compliance could reach 2,500 million euros. This framework emphasizes careful, transparent progress toward agreed reforms and deadlines.