gift day, The government approved an important reform in this legislature by royal decree: pensions. The new model, whose main purpose is to increase revenues and to ensure the sustainability of the system without reducing benefits, was presented at the extraordinary meeting of the Council of Ministers.
Pension reform: all the keys
This pension reform brings changes in the calculation period. It will now be calculated over the contributions of the last 25 years or over the contributions of 29 years, excluding the worst two years. In practice, this means a calculation span of 27 years in the latter case.
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A significant innovation in pension reform is the Intergenerational Equality Mechanism (MEI). It will directly affect contributions starting January 2023. This mechanism is a new tax approved in the first phase of the reform, which means a 0.6% increase in contributions for common contingencies, distributed between employers and workers in proportions similar to existing social contributions: 0.5% for the employer and 0.1% for the worker.
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The MEI aims to maintain balance between generations and strengthen the long-term sustainability of the Social Security system. For this purpose, an additional contribution is set to fuel the Social Insurance Reserve Fund for ten years, from 2023 to 2032.
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The government expects these measures to increase revenue by 1.2% of GDP, equivalent to around 15,000 million euros. The gap created by the arrival of baby boom generations into the system remains to be closed. It is estimated that total pension expenditures will reach 15% of GDP by 2050.
The reform also foresees improvements in minimum pensions, aiming for the minimum contribution pension to be close to 60% of the median income. A similar process is planned for non-contributory pensions, which will rise until they approach 75% of the poverty line for single-person households by 2027.
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To address gender inequality in pensions, the gender gap supplement will increase by an additional 10% to the annual revaluation in 2024-2025. In addition, improvements were made to close premium gaps for women.
To fund these improvements and avoid cuts, the Government negotiated with Brussels measures that raise revenue mainly through wages, including adjustments to the maximum contribution bases to earn more income from higher salaries starting next year. Maximum pensions will be reassessed annually with the CPI, plus an additional cumulative increase through 2050.
The pension reform will take effect immediately after the Royal Decree is published.