The Minister for Participation and Social Security, José Luis Escrivá, announced a bracket-style system that increases contributions from higher salaries to support future pensions. The idea is simple: as pay goes up, so do the contributions. For the highest earners, about 6,743.25 euros per month (roughly 80,919 euros per year) will trigger a special surcharge that pushes past the current ceiling by more than half. This change is one of the late-added elements of pension reform meant to boost public system revenue as the population ages, a concern highlighted by media outlets such as EL PERIÓDICO.
Government approves pension reform and civil service law
The royal decree, approved by the government in the Council of Ministers, introduces a new contribution package that mainly targets large employers and focuses on taxing top payrolls. The goal is to compel companies to disclose and finance the full scope of their workers’ salaries through a single framework, something not seen before since the salary ceiling stopped contributions previously. A solidarity rate will tax the portion of earnings above the maximum ceiling.
Initially, Escrivá proposed a 1% surcharge on employers starting in 2025, with a plan to raise this rate gradually to 6% by 2050 to relieve growing pressure on the public system. The aging Baby Boomer generation was cited as a key factor driving the reform, as future cohorts will be smaller and harder to fund benefits for.
Between the initial proposal and the final text approved by the Council of Ministers, the structure of the solidarity ratio was adjusted. It remains progressive but is extended over a longer period. In 2025, salaries 10% above the maximum ceiling will pay a 0.92% surcharge on the non-contributory portion. Those earning 10% to 50% above the ceiling will incur an additional 1% fee. Earnings above 50% will face a 1.17% surcharge. The plan envisions a rising path through 2050 with percentages of 5.5%, 6%, and 7% respectively. The distribution of the contribution shares favours the company with a 5-point allocation and a 1-point share for the worker.
€120 billion for the retirement fund
Alongside the higher bases and broader inflation, the reform introduces a mechanism that increases overall contributions across all workers, regardless of salary. The Intergenerational Equality Mechanism (MEI) is designed to create a growing reserve for future pensions. For a salary of 2,000 euros, this mechanism would reduce take-home pay by about 10 euros monthly as contributions grow. From 2029, the quota will double, adding about 20 euros per month for the same salary. Projections by Escrivá estimate a cumulative €120 billion in the retirement fund by 2040.
The reform faced resistance from business associations, with CEOE opting to withdraw from the discussion and voicing strong opposition. The demographic reality shows roughly 1.2 million workers earning above the current ceiling, concentrated in technology firms, consulting, banking, and certain industrial sectors. The impact on smaller firms is expected to be less pronounced than on larger companies, although the reform signals a broad shift in how pensions are funded and sustained over the long term.
(Source: EL PERIÓDICO, Prensa Ibérica group).