Green light for the draft bill that includes the first leg of the reform of the pension system promised to Brussels. The council of ministers has approved the new rule, which will come into force in 2022, after passing through the Cortes, and which is only the beginning of a global reform agreed with Brussels and with which the Government has committed to save the system about 30,000 million euros.
The kind part of the reform includes the elimination of the most controversial aspects of 2013, such as the pension revaluation index (IRP), which limited its annual increase to 0.25% in cases of deficit, or the so-called sustainability factor. The latter, of course, must be replaced by a new intergenerational equity mechanism that has not yet been defined and that the Government and social agents must have ready before November 15. In addition, pensions are tied back to the CPI, which will have a strong impact on the accounts of the system.
This is precisely the most complex part, and it will be addressed in the next stage of the negotiations. To start with, this measure will cost 2,400 million euros per year, according to Fedea’s calculations, an amount that the Minister of Social Security, José Luis Escrivá, hopes to neutralize with the income that he achieves in the second part of the reform and that includes the increase in taxes. to the salaries of more than 49,000 million, the extension of the years that are taken into account to calculate the pensions, currently in 25 years, or the savings obtained with delayed retirement. The global adjustment that Escrivá is pursuing – and to which it has committed to with Brussels – is 3 points of GDP, the equivalent of 30,000 million.
In addition, the guarantee to retirees of the revaluation of their payroll with the IPC also imposes important cuts in voluntary early retirements, which will reach up to 21% if the transition to the system is advanced two years before the legal retirement age. In the next phase, the self-employed contribution system will also be reviewed, which was excluded from this agreement after a strong controversy following a proposal from Escrivá that this group called “unacceptable.”
Other levers used by Escrivá to balance Social Security accounts, which now have red numbers of more than 20,000 million, are accounting adjustments. The so-called ‘improper expenses’ of Social Security are transferred with the tax reform at a rate of about 21,000 million a year, the equivalent of 2% of GDP. By the end of this year, almost 14,000 million will have been injected, as they were included in the Budgets, and each year the data will increase to the figure agreed with the Treasury. All these projections are, however, very taken with a grain of salt given the long scenario foreseen for the application of the changes and the uncertainty that this entails.
Below is a list of the measures with which it is sought to make the system sustainable:
Guaranteed purchasing power
The revaluation with the CPI of the previous year is guaranteed for retirees. The government has given up on demanding adjustments to their pay when prices drop. Thus, the revaluation index of the 2013 reform is repealed, which required revaluation of payrolls by 0.25% if the accounts were not balanced.
Penalties for early withdrawal
Retiring early will have a cost for the worker. The design of the reduction coefficients is toughened for those who retire 24 or 23 months before the legal limit and will reach 21% (the reduction of the pension is now 16%) and from there the punishment decreases in some cases. For example, those who leave the labor market 22 months before their legal retirement age will see their pension decrease by 14.67% and not by 16%. The pattern is repeated among those who have contributed for a longer time, although with fewer penalties. Thus, those who have contributed between 38.6 years and 41.6 years would be applied a reduction coefficient of 19% in month 24 and 16.5% in month 23, compared to the current 15% in the corresponding quarter. The change in penalties, from a monthly to a quarterly calculation, will also apply to that of forced early retirement. In this, the worker can retire up to four years before the legal age and must have been dismissed in an ERE, objectively or due to the bankruptcy of the company. A system is established for these cases that will reduce the pension by 30% in the case of a four-year advance with less than 38 years and six months of contributions, and 0.5%, for those who anticipate it a month with 44 and six months or more in contributions.
Prizes of up to 12,000 euros
There will be new monetary incentives for those who continue working beyond the legal retirement age. They will receive a one-time premium of up to almost 11,000 euros (in the case of 37,567 euros of pension) for each year of delay. In the event that the worker has contributed for at least 44.5 years or more, this incentive would reach 12,060 euros for each year of deferral. Thus, for example, in a pension of 9,569 euros (683 euros per month) this single payment would be 4,786 euros and 5,264 with more than 44.5 years of contributions. While in an average pension of 20,000 euros per year, this single premium would be 7,482 and 8,230 euros, respectively, depending on the years of contributions. The rule will give the worker the option of choosing this formula or also opting for a 4% increase in the regulatory base of his pension for each of these years that he delays his retirement (at present this incentive is between 2% and 4% %). They may mix the two possibilities, one part in a single payment and the other as an increase in the life pension.
Quote and stay active with more than 65 years
Neither companies nor workers over 65 years of age who continue to work pay a contribution for common contingencies, except for temporary disability. From now on, the periods not paid will be counted as paid for the future pension.
Dismissed from the financial crisis
Those laid off before April 1, 2013 who had not found a job will continue to access retirement at 61 years of age, that is, with the conditions set before the 2011 reform, which raised the legal retirement age to 67 years. A definitive solution is given to these victims of the financial crisis.
Repeal of the sustainability factor
The factor designed in 2013, which adjusted pensions to life expectancy, will be repealed this year and will be replaced before December by an intergenerational equity mechanism that will operate from 2027. It must be defined when the law enters into force.
Forced retirement and hiring of women
The approved text prohibits these clauses from being established in the company’s collective agreements for workers under 68 years of age, although it introduces some exceptions aimed at improving the presence of women in certain sectors, as well as the quality of their workers. Specifically, forced retirement before age 68 will be legal only for those sectors in which women represent less than 15% of employed persons and provided that, in addition, two conditions are met. The first, that sick leave must simultaneously entail the permanent and full-time hiring of at least one woman and, the second, that the retired person has the right to collect 100% of the ordinary retirement pension.
In addition, the agreement leaves an escape route to the forced retirement clauses in force right now and that have proliferated in many collective agreements in the last two years and states that they may continue to be applied up to three years after what is agreed in their agreements.
This clause introduces the exception to the rule since, in Spain, retirement is always voluntary. When the legal retirement age is reached, currently between 65 and 66 years old, the company cannot force an employee to resign without paying compensation beforehand or without having a legal justification. That is why this clause has been entering and leaving the legislation in recent years, repealing it by popular governments and rescuing it by socialists.
Self-employed and real income contribution
The self-employed will also have news in their contribution system, but it will be from January 1, 2022, at which time the real income system will be launched. After the strong commotion created by the proposal of some contribution tables by Social Security, the text now simply includes that some sections will be established to which the self-employed will be taken based on their income and that they can modify up to six times. It is emphasized, however, that these sections will be agreed within the framework of social dialogue and a period of twelve months is given to address the differences between the general regime and that of the self-employed to equalize social protection between the two. The tranches will also be established according to their yields and, if once the annual declaration has been made there are differences between both amounts, the return of the quote may be requested.
Quotation of scholarship holders and widowhood
The reform also addresses the situation of other groups, such as scholarship holders and widowhood in common-law couples. The document undertakes to address within six months a regulation to give access to the widow’s pension for common-law couples in order to equate the conditions of this group to those enjoyed by married couples. In half the time, three months, a regulation must also be developed that guarantees that the activity of the scholarship holders, even if it is not remunerated, is included in the Social Security. A 75% discount is established in the price of these practices.
Financing of caregivers
Likewise, it is established that within a maximum period of six months, financing must be established to compensate the fees of the caregivers of people in a situation of dependency who have reduced their working hours so that they can continue to maintain their contribution bases in full.
The same six-month period is the one set to approve a bill to launch the State Social Security Agency, one of the mandates of the Toledo Pact, which should be in charge of modernizing the system and maintaining its balance. Precisely, to guarantee the income of the system, the norm culminates the separation of sources of financing that began this year. It establishes that both in 2022 and 2023 the annual transfer approved in the Budgets will be increased (almost 14,000 million this year) until all improper expenses are covered.
George is Digismak’s reported cum editor with 13 years of experience in Journalism