Spain finally found a consensus after months of dispute over the final layer of reform for pensions. The aging of the population means the country will face rising spending in the coming years, nudging Spain toward the higher end of European pension expenditure by 2050. Minister of Inclusion Jose Luis Escrivá has reached an agreement with government partners in Brussels and Unidas Podemos, but talks with employers and unions remain ongoing.
Escrivá’s reform unfolds in a series of layers. First, a system of incentives and penalties was put in place to discourage early retirement and reward workers who extend their careers. Then a move was made to abolish the additive system for self-employed workers, allowing them to contribute in line with their income and generate more revenue for the public coffers. Now there are plans to activate five levers intended to raise Social Security income and improve benefits for groups with less stable career paths. These levers will often require greater effort from the administration and could impact corporate accounts, especially large ones.
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According to the executive, new measures include a solidarity tax on high wages, increased extraordinary contributions for the pension fund, and a gradual rise in the maximum contribution base. When fully implemented, these measures are expected to bring in just over 15 billion euros annually. The objective is to raise revenue to reach 15.5 percent of GDP to fund pensions in 2050, a level forecast by the European Commission. Presently, spending runs around 12 percent of GDP, and the retirement of baby boomers is already pushing this higher.
Increase in the maximum contribution base
The most significant reform proposed by Escrivá is raising the maximum contribution base. At present, contributions cap after the monthly threshold of 4,495.50 euros, and earnings beyond that are not taxed for social security. The public treasury, however, plans to gradually lift this ceiling to generate higher revenue. It is estimated that around 1.2 million workers in Spain do not contribute on their full salary.
Consensus between the PSOE and Unidas Podemos envisions raising these maximum bases gradually, starting in 2024 and increasing each year in step with CPI growth and pensions tied to contributory rights, plus an annual 1.2 percent uplift. By 2050, this approach would produce about a 38 percent rise in the maximum base, subject to adjustments as the CPI updates are incorporated.
Solidarity rate
Increasing contribution bases is not the sole path to boosting Social Security income. The base will rise, but the full rate will not be applied to every earner, ensuring that high salaries are taxed in full, aligning with similar measures in other European Union countries. The solidarity rate is designed to support public revenue while maintaining wage fairness, governing the portion of earnings above the ceiling that will face social security contributions.
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For example, a salary of 100,000 euros per year is currently noted as up to 53,946 euros with 46,054 euros not listed. The solidarity rate will apply to those 46,054 euros, increasing over time. It will start at 1 percent in 2025 and rise by 0.25 percent annually until reaching 6 percent by 2045. The increases will be shared among employers and workers, with six points allocated to employers and one to employees. Unlike some expectations, this surcharge will be permanent and will not automatically raise the maximum pension.
Expansion of the MEI
In 2023, the Intergenerational Equity Mechanism (MEI) took effect, adding 0.6 points to employee contributions, largely borne by companies. This surcharge has been in place since then and is planned to continue until 2032. Social Security estimates it brings about 2.7 billion euros annually into the public coffers and is now set to rise. Escrivá proposes doubling this 0.6 point to 1.2, with a larger share going to companies and a smaller portion to workers. The MEI increase is also a response to broader European Commission expectations and aims to extend the MEI horizon from 2032 to 2050.
Calculation period and gaps
Future retirees will be able to choose between maintaining the current 25-year calculation period or extending it to 29 years and excluding the worst 24-month contribution when calculating pension benefits. Escrivá therefore extends the calculation period in a way that avoids harming retirees. The two-calculation-period approach will be temporary and in place through 2044, after which the 29-year model will be applied with two discount options.
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The final reform approved in 2011 under Zapatero raised the calculation period from 15 to 25 years and cut many future pensions. Escrivá argues that future retirees can choose between continuing with the current 25 years or moving to 29 years with two possible reductions. This change benefits those with less stable career paths. A 62-year-old with a good salary who loses their job close to retirement would prefer the second option, whereas someone who kept their job might benefit from the first.
Alongside these changes, there will be better treatment for contribution gaps—years when a worker did not contribute due to layoffs, child or dependent care, or difficulty finding work. Social Security aims to reduce penalties for less stable workers while increasing public spending in exchange for broader coverage and fairness.
Maximum and minimum pensions
The final phase of Escrivá’s reform also targets both maximum and minimum pensions. Last year, measures tied to CPI increases to protect retirees’ purchasing power began, and now terms for both maximum and minimum benefits are being adjusted. In Spain, the maximum pension is capped, meaning high earners do not receive pensions based on their full contributions. The state sets a ceiling, and in 2023 the maximum monthly pension was 3,059.23 euros. The reform contemplates raising this ceiling gradually, though the maximum contribution would grow more slowly than the floor. The initial aim was to add inflation to the ceiling, lifting it by roughly 15 to 25 percent from current levels.
The plan also targets the minimum pensions. The goal is to raise the minimum contribution for people over 65 with a dependent spouse to the equivalent of 60 percent of the median household income for a two-adult home, while the non-contributory minimum would reach 75 percent of the median income for a single-person household. These goals are pursued in stages with an eye toward a 2027 horizon.