HE State He managed to reach a consensus after months of disagreement over the final layer of his reform. pensionsThe ‘baby boomers’ (born in the ’60s) are the ones who need to lay the groundwork to resist the onslaught of retirement. Inclusion Minister José Luis Escrivá agreed on a structure with the government partners of Brussels and Unidas Podemos. He still needs to finish negotiations with employers and unions.– Given the aging of the population, it will face a gradual increase in spending in the coming years, making Spain the third highest spending country in 2050 to pay for the public system, according to calculations of the European Union. Bank of Spain.
Escrivá’s reform unfolded in layers. First created system of incentives and penalties to limit early retirement and reward employees for extending their working careers. Then gave a abolition of the additive system self-employmentlet them pay wages according to their income and yield, thus bringing more money into the public coffers. And now plans to activate five levers This should serve to increase the income of the Social Security coffers and improve the benefits of some 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 executive’s estimates, only new The “solidarity tax” created to tax all high wages, 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 goal is to get enough income to be able to allocate. 15.5% of GDP Spanish for paying pensionsAs predicted for 2050. Currently spending is equivalent to 12% of GDP, but baby boomers’ retirement is starting to increase it.
Increase in the maximum contribution base
The most important innovation that Escrivá brought in his reform, increase in the maximum contribution base. 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. Social Security idea, gradually raise this ceiling to generate higher income. According to the executive’s own calculations, there are currently around 1.2 million workers in Spain who do not contribute to their full salary.
Consensus proposal between PSOE and Unidas Podemos, the gradual increase of 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
An increase in contribution bases will not be the only way to increase the income Social Security expects. And the bases will rise, but a full decline will not be achieved, which means that high salaries will be quoted in full, as in other countries of the European Union. Escrivá is a fundraiser to support revenue from the public treasury and to do this within the framework of the taxation philosophy of the integrity of wages. rate baptized as “solidarity” this will govern the percentage of salary above the maximum floor that will remain uncontributed.
For example, a salary of 100,000 euros per year is currently listed as up to 53,946 euros and 46,054 euros is unlisted. 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 2025 and will grow by 0.25% each year until it reaches 6% by 2045. These six points will be divided by five points by employers and one point for employees. Contrary to what was originally expected, this surcharge will be permanent, not temporary. In addition, the application will not entitle the worker to raise the maximum pension.
Expansion and expansion of MEI
In 2023, the so-called Intergenerational Equity Mechanism (MEI) went into effect., an additional fee of 0.6 points over 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 not only increases in quantity, it also extends over time as something the European Commission demands from Spain. Specifically, the Escrivá reform moves it from the current 2032 horizon to 2050.
Calculation period and gaps
May future retirees Choose between keeping the current calculation period of 25 years or extending it to 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 live until 2044. From now on, the 29-year-old model will be set up in a unique way with two discount possibilities.
The final pension reform of the PSOE, approved in 2011 in the final throes of José Luis Rodríguez Zapatero’s second term, increased the calculation period from 15 to 25 years, a pension 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 change is intended those with less stable careers. 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 penalize less employees with less stable careers and provide more favorable treatment for these gaps at the expense of more public spending.
Maximum and minimum pensions
The last layer of the Escrivá reform was also affects both maximum and minimum pensions. Last year, one of the first measures agreed upon under the social dialogue came into effect; this includes increasing the contributions every year depending on the increase in the CPI to protect the purchasing power of retirees. On this basis, Escrivá has now changed the terms of both maximum and minimum benefits.
In Spain, maximum pensions are capped, 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 2023, the maximum amount of pension a pensioner can receive is 3,059.23 euros per month.. 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 add the effect of inflation to the current ceiling, raising it 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. Its plan is to bring the minimum contribution for persons over 65 with a dependent spouse to the equivalent of: 60% of median income for a house with two adults. And the non-contributory minimum is up to 75% of the median income of a one-person household. All this will have already been fulfilled in stages, but by the 2027 horizon.