The government has managed to reach a consensus after months of disagreement over the final layer of European Union reform. pensions, ‘ who needs to lay the foundations to resist the onslaught of retirement.baby boomers(Born in the 1960s). Minister of Inclusion, Jose Luis Escriva, It has agreed with the government partners of Brussels and Unidas Podemos on a structure that, given the aging of the population, will face a gradual increase in spending in the coming years and worsen Spain – which has not yet finished negotiations with employers and unions. According to the calculations of the Bank of Spain, in 2050 it will be the third country in the European Union to make the highest expenditure on the public system.
Escrivá’s reform unfolded in layers. First, it created a system of incentives and punishments to limit early retirement and reward employees for extending their working careers. He then reversed the contribution system for self-employed people to pay quotas based on their income and income, thereby bringing more money into the public coffers. And now it plans to enable five levers that should be used to increase the income of the Social Security coffers and increase the benefits of the group, especially those with less stable professional careers. Leverages will often come at the expense of corporate accounts, particularly large accounts, as well as greater effort from the Administration itself.
According to the estimates of the executive, only new “solidarity rate” Created to tax all high salaries, the increase in extraordinary contributions (MEI) for the pension piggy bank, and the gradual increase in the maximum contribution base, Social Security will collect just over €15,000 million each year when the measures are fully implemented. The objective is sufficient income to be able to allocate is to be able to obtain. 15.5% of GDP Spaniards will pay their pensions, as predicted for 2050. Currently, spending is equivalent to 12% of GDP, even though baby boomers’ retirement is starting to increase it.
Increase in the maximum contribution base
The most important innovation that Escrivá brought in his reform, maximum additive bases. Currently, fees are not quoted due to their total integrity and there is a ceiling after which they are exempt from tax. Specifically, the public treasury only pays up to 4,495.50 euros in taxes per month, from then on it stops the salary contribution and this means cost savings for the company. The idea for Social Security is to gradually raise this ceiling to generate higher income. At present, according to the Executive’s own calculations, approximately 1.2 million workers Those who do not contribute to the integrity of their salary throughout Spain.
The consensus proposal between PSOE and Unidas Podemos envisions a gradual increase in these maximum bases. It will start from 2024 and will increase each year as the CPI rises – as does the amount of contributory pensions – plus an annual increase of 1.2%. In this way, the current maximum floor will accumulate a 38% increase over the 2050 horizon, according to sources familiar with the conversations that the update from the CPI should be added.
“Solidarity” rate
The increase in contribution bases will not be the only income increase expected by Social Security. And the soles will rise, but a full decline will not be achieved, which means that high wages will be offered for all salaries, as in other countries of the world. European Union. Escrivá devised a rate, which he christened, “to supplement revenue from the public treasury and to do so within the philosophy of taxation of the integrity of wages”.solidarity“He will manage the percentage of salary that will remain without contribution.
For example, a salary of 100,000 Euros per year is currently quoted up to 53,946 Euros and 46,054 Euros are not quoted. The “Solidarity” rate will tax these 46,054 euros and do so through a percentage that will increase over time. It will start at 1% in 2026 and will grow by 0.25% each year until 2045. 6%. This quota shall not entitle the worker to increase his future pension.
Expansion and expansion of MEI
This came into effect as baptism of 2023 Intergenerational Equality Mechanism (MEI) an additional 0.6 point to employee contribution and is mainly borne by the company. This surcharge has been in effect since this year and is expected to remain in effect until 2032. Social Security calculates that this brings about 2,700 million euros a year into the public coffers and is now preparing to increase this tax. Escrivá’s idea is to double that 0.6 points to 1.2 points, with one going to companies and 0.2 to workers.
The MEI is not only increasing in quantity but also lengthening over time as something the European Commission has requested from Spain. Specifically, the Escrivá reform moves it away from the current 2032 horizon. 2050.
Calculation period and gaps
Future retirees can choose between keeping the current period for calculation. 25 years or expand 29 years and subtract the worst 24-month contribution to calculate your pension. Thus Escrivá extends the calculation period as the legislature has followed since its inception, but does so in a way that does not harm any retirees. This double calculation period scheme will be temporary and will be valid until: 2044. From now on, the 29-year-old model will be set up in a unique way with two discount possibilities.
The PSOE’s last pension reform was approved in 2011 during the final throes of a second term. Jose Luis Rodriguez Zapatero increased the calculation period from 15 to 25 years, which represented a retirement cut for much of the group. As Escrivá argues, future retirees will be able to choose between continuing with the current last 25 years of contributions or going up to 29 years and making two cuts.
Who will benefit? This modification is intended for people with professional careers. less stable. For example, a 62-year-old worker with a good salary is suddenly fired and has no income in the last five years of his working life. He is probably more interested in the second modality and would have been more interested in the first if he had kept his job.
Added to these changes in the accounting period are better coverage of contribution gaps, i.e. years in which the worker has not contributed for whatever reason. Either because you were laid off, because you quit your job to take care of a child or a relative, or because you couldn’t find a job. Social Security would provide less punishment for workers with less stable careers and more favorable treatment for these gaps at the expense of more public spending.
Maximum and minimum pensions
The final layer of Escrivá’s reform maximum pensionaspect minimum. Just last year, one of the first measures agreed upon under the social dialogue came into effect; CPI, to protect the purchasing power of these retirees. On this basis, Escrivá has now changed the terms of both maximum and minimum benefits.
In Spain, maximum pensions are restricted, ie high wages are not charged based on the totality of their contributions and the State sets a benefit ceiling under the redistribution criteria. This is the maximum amount of pension a pensioner can receive in 2023 €3,059,23 monthly. Escrivá’s idea is to raise this ceiling gradually, although the maximum contribution will rise at a slower rate than their floor. His initial claim was to raise the current ceiling and increase the impact of inflation by between 15% and 25% compared to current levels.
As for pensions with minimum contribution, the increase in these amounts will be higher than the average increase in pensions. His plan is to make the minimum contribution equivalent to 60% of the median benefit for people over 65 with a dependent spouse in a two-adult household. And the non-premium minimum is up to 75% of the median for a one-person household. All this will have already been fulfilled in stages, but by the 2027 horizon.