This week has been the final sprint for a race that José Luis Escrivá had been running for months and with the odds against it. However, in the end he has managed to gather the support of Brussels, Podemos, unions and enough political forces to guarantee the approval of the last phase of the pension reform. A transformation of the system that has to compensate with more income via social contributions, a dual calculation and added benefits. The Minister of Inclusion and Social Security took the tactical turn at Christmas that has allowed consensus, through a very discreet negotiation, with only a handful of people who had access to the details. Faced with criticism from the CEOE, Escrivá defends that the reform is perfectly acceptable and that, if that were not the case, Brussels would never have accepted it.
When did you realize that extending the computation period to calculate the pension was not going to add support and you agreed to go to the dual system?
After months of negotiation, we found that a proposal with only one possibility could prove problematic in obtaining sufficient parliamentary support. The proposal to extend the computation period to 29 years by discarding two was neutral from the point of view of spending, and certainly more equitable for the youngest, but we decided to calculate what the cost of this dual model would be. And once calculated, we look for formulas to get additional resources from the Intergenerational Equity Mechanism (MEI) in order to balance the system. We took it very discreetly, very few people knew about it.
The problem is that the dual system has an added cost.
It is a moderate cost, one tenth of GDP in the long term.
In the negotiation with the European Commission, what elements were critical to convince them to endorse the reform?
There have been several elements. On the one hand, the understanding of going for a balanced solution of incentives to achieve that the effective retirement age is closer to the legal age and, on the other hand, obtaining additional resources with a moderate increase in social contributions. In relation to the second element, we have had to explain that it does not make sense to propose excessively conservative scenarios at this time and that they entail adjustments that the majority of Spanish society rejects. It is much more politically reasonable and sustainable for any discussion on medium-term scenarios to be elucidated over time, through flexible mechanisms that adapt to possible circumstances.
The reform has the endorsement of Brussels and the agreement of the unions in its favor, but the bosses are against it. Are you afraid that in the future there could be a counter-reformation?
I think not, that there will be no counter-reform at all, because the arguments to oppose it are very few and we have not seen alternatives to the model we have proposed either. I would invite everyone to tell me where the alternatives are and who has proposed them at some point in the last few months during the negotiation at the social dialogue table. On the other hand, the argument that is given about the increase in labor costs is very unsustainable, because the increase is very small and absolutely manageable. The labor cost per hour worked in Spain is 23.4 euros, and what this measure will mean in the short term is to go from 23.4 euros to 23.5 euros and in the long term, in 2050, to 23 €8. In other words, just a rise of 37 cents per hour worked. When one compares these labor costs with the reference levels that exist in Europe, the European average is 33.8 euros. Therefore, these data show that the reform does not jeopardize the competitiveness of Spanish companies at all. It is perfectly acceptable.
You have complained that the CEOE has not presented proposals. If it had been more active, would the rise in social security contributions have softened?
First it would be necessary to know what proposals they would have raised; Any other questions are pure hypotheses. The reality is that we do not know what the alternative model is to guarantee sustainability, they have not proposed alternatives.
Government relations with Mr. Garamendi were very good in the first part of the legislature, but in the last year they have entered a zone of conflict.
With the social agents, including the CEOE, we reached six agreements to protect the productive fabric during the pandemic. At that time there were no doubts about fiscal sustainability, when they brought us requests for greater spending and a greater extension of aid, and, nevertheless, it is something that now seems to be highlighted by businessmen. We also reached a great agreement on the first part of the pension reform in the summer of 2021. In addition, we agreed with the CEOE on a labor reform that is having extraordinary results in creating jobs and reducing precariousness. And we even agreed in July 2022 on a far-reaching structural reform such as the self-employed contribution system. It has been after last summer when we have seen a change in attitude. However, even without the support of employers, it should be noted that it is a reform that was built from social dialogue, and that the pension reform is very solid, and is technically very well designed.
You have said that Alberto Núñez Feijóo has disrespected by speaking of the reform as a botch job and a PowerPoint.
To describe a reform of this magnitude as bungling or PowerPoint, which has been discussed extensively with the European authorities, for months with the social agents, all kinds of texts have been prepared on which we have worked and which, furthermore, have been discussed for hours this Wednesday in the Toledo Pact, it is a lack of respect for all these instances that have worked so constructively to have such a solid reform. It seems unusual to me.
Is the reform sustainable?
Of course. First, the starting point in Spain is from pension spending that is clearly below that of other European countries. Secondly, we have a sustainability problem that is very limited in time, which is concentrated in the 1930s and 1940s. Despite this, an image of sustainability has been created that is very different from reality, since from In the 1940s the system will automatically rebalance itself due to the very evolution of demography. Therefore, what we have done is extraordinarily strengthened the system in the 1930s and 1940s, when we have the greatest demographic challenge. Furthermore, I believe that the European authorities would not trust a reform that was not very solid.
Will spending on pensions go from 12.5% ??of GDP this year to 15% in 2047?
This level of 15% of GDP could have been the expense if measures had not been taken to contain the increase in spending, as we did in the 2021 reform, with the modification of the disincentives for early retirement and the new incentives for late retirement . With these measures we will reach 2047, the year in which there is expected to be the greatest tension due to demographic issues, with spending on pensions of less than 14% of GDP. And to finance this increase in spending for demographic reasons, we have put in place new revenue measures that strengthen the system.
Why is the solidarity quota not applied to the self-employed?
Because it is a group that is in transition to a new system that we have just launched. Therefore, we must go on evaluating how this new system works. For the moment, we have specified the first three years, until 2025 and then we will have to renegotiate until 2032. It would be rash to introduce the solidarity quota now.
Study services such as Fedea and BBVA Research consider that the reform is not sustainable.
In my opinion, their reactions are hasty, they released their reports before the standard had even been published in the BOE. I hope they rectify when they know the details and analyze the reform in greater depth. These reports have been published practically when only the general lines of the reform were known. It is a subject that I know in depth since I was chief economist at BBVA and director of its Research Service, and when we had to evaluate reforms we took a long time to do it rigorously. We also interacted with the authors of the reform to learn the details. When this happens, I think we will see different evaluations.
Did Fedea and BBVA request information on the reform?
No, they have not addressed us.
The maximum base is increased immediately but, on the other hand, the pension will only be revalued much later.
The greatest pressure on the system occurs in the 2030s and 2040s. For this reason, we increase the contributions of those who are in the maximum base, which allows income to be available precisely at the moment when it is most needed, and then, at As the system rebalances, pension rights are recognized as time goes by. It is important to point out that, from a contributory equity point of view, it is reasonable for maximum pensions to be revalued only after workers have been exposed to higher maximum bases throughout their working careers.
At the last minute and at the request of the unions, he agreed to raise the minimum pensions by 22%.
The important thing is not so much the level of increase, but that there is a reference, just as it exists in the minimum wage, with which we force ourselves to converge over a series of years. This reference to the poverty threshold is the most important thing and where we have agreed. The truth is that there were no big differences. From the beginning we all agreed on this point.
It has added support from the unions, PDECat and Bildu in exchange for additional concessions.
They are not concessions. Many times the groups make contributions to us that improve the norm and that has happened with parliamentary groups that have shown a very constructive attitude.
One of the criticisms of the reform is that it mortgages the future of young people.
Saying that it mortgages the future of young people is one of those false narratives that are built and that have very little fit in the evidence. First, because it is a fallacious debate to oppose the reinforcement of the pension system at the expense of young people. It doesn’t have to be like that, you can have a system with sufficient pensions and that is very important, and take a set of measures like this government is taking very broad support for young people. On the contrary, maintaining the sustainability factor of the PP would have been extraordinarily harmful to young people because it would have meant a cut for them of at least 10% of their initial pension when they reached retirement.
The approval of the reform in Spain coincides with that of France, with great response in the street. France hasn’t done her homework on time?
The systems are very difficult to compare because France has, for example, 42 special retirement schemes, which generate many disparities and burden the system’s expenses. In addition, spending on pensions in France is three points of GDP above Spain’s, and its legal retirement age is 62 years. I think that in Spain we have made reforms, such as the one in 2011, which allows us to have a much better starting point and also the figure of the Toledo Pact, which has existed since 1995, has contributed to our having a system.
