This week was the final sprint for a race that José Luis Escrivá had been running against the odds for months. However, in the end he managed to unite the support of Brussels, Podemos, trade unions and political forces sufficient to guarantee the approval of the last phase of the pension reform. A transformation of the system that must compensate with more income via social contributions, a dual calculation and added benefits. The Minister of Inclusion and Social Security made at Christmas the tactical turn that has allowed the consensus, through a very discreet negotiation, with only a small group of people who had access to the details. In view of the CEOE’s criticism, Escrivá defends that the reform is perfectly acceptable and that, if this were not the case, Brussels would never have accepted it.
When did you realize that extending the calculation period to calculate the pension would not add supports and agreed to go to the dual system?
After months of negotiation we realized that a proposal with only one possibility could be problematic to obtain sufficient parliamentary support. The proposal to extend the calculation period to 29 years by discarding two was neutral from the point of view of expenditure, 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 looked for formulas to get additional resources from the Intergenerational Equity Mechanism (MEI) to square the system. We did it very discreetly, very few people knew.
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 to go for a balanced solution of retirement incentives to achieve that the effective retirement age is closer to the legal age and, on the other hand, to obtain additional resources with an increase moderation of social contributions. In relation to the second element, we have had to explain that it does not make sense at this time to propose overly conservative scenarios that involve adjustments that the majority of Spanish society rejects. It is much more reasonable and politically sustainable for any discussion about medium-term scenarios to be clarified over time, through flexible mechanisms that adapt to possible circumstances.
The reform has in its favor the endorsement of Brussels and the agreement of the unions, but it has against the employers. Are you afraid that in the future there could be a counter-reform?
I think 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 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 euros. In other words, just an increase of 37 cents per hour worked. When one compares these labor costs with reference levels in Europe, the European average is 33.8 euros. Therefore, these data show that the reform does not put the competitiveness of Spanish companies at risk at all. It is perfectly acceptable.
He has complained that the CEOE has not presented proposals. If it had been more active, would the increase in social contributions have been 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.
The Spanish Government’s relations with Mr. Garamendi were very good during the first part of the legislature, but in the last year they have entered a conflict zone.
With the social agents, including the CEOE, we reached six agreements to protect productive tissue during the pandemic. At that time, there were no doubts about fiscal sustainability when we were brought requests for more spending and more extension of aid, and yet it is something that seems to be highlighted by employers now. 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 job creation and in reducing precariousness. And we even agreed in July 2022 on a very important structural reform, such as that of the self-employed contribution system. It was after the summer when we saw a change in attitude. However, even without the support of employers, it should be noted that it is a reform that is built from social dialogue, and that the pension reform is very solid, and is technically very well designed.
He has said that Alberto Núñez Feijóo has failed them in this respect because he talked about the reform as if it were a nyap and a Power Point.
A reform of this importance, which has been discussed extensively with the European authorities, for months with the social agents, has been prepared with all kinds of texts on which we have worked and which, in addition , was discussed for hours this Wednesday in the Toledo Pact is a lack of respect for all these bodies that have worked so constructively to have such a solid reform. It seems unusual to me.
Is the reform sustainable?
Absolutely. First, the starting point in Spain is an expenditure on pensions that is clearly below other European countries. Secondly, we have a very limited sustainability problem 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 the 1940s the system will be automatically rebalanced due to the same evolution of demographics. Therefore, what we have done is to strengthen the system extraordinarily in the 1930s and 1940s, when we have the most important demographic challenge. Moreover, I believe that the European authorities would not trust a reform that was not very solid.
Will pension spending go from 12.5% ??of GDP this year to 15% in 2047?
This level of 15% of GDP could have been spending if measures had not been taken to contain the increase in spending, as we did in the 2021 reform, with the modification of early retirement disincentives and the new incentives to delay. With these measures we will reach 2047, the year in which there is expected to be more tension due to demographic issues, with expenditure on pensions less than 14% of GDP. And to finance this increase in spending for demographic reasons, we have launched new revenue measures that strengthen the system.
Why does the solidarity fee not apply to the self-employed?
Because it is a collective that is in transition towards a new system that we have just launched. For this reason, we have to evaluate how this new system works. At the moment, we have specified the first three years, until 2025, and then it will be necessary to renegotiate until 2032. It would be hasty 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 made the reports public before the rule had been published in the BOE. I hope they will correct it when they know the details and analyze the reform in more depth. These reports were practically published when only the general lines of the reform were known. It is a subject 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 allocated a lot of time to do it rigorously. We also interacted with the authors of the reform to find out the details. When that happens, I think we’ll see different assessments.
Did they request information on the Fedea and BBVA reform?
No, they have not addressed us.
The maximum base is increased immediately, but instead the pension will only be revalued much later.
The greatest pressure on the system occurs in the 2030s and 2040s. That’s why we increase the contributions of those on the maximum base, which makes it possible to have income just when it is most needed, and then , as the system rebalances, pension rights are recognized over time. It is important to note that, from a contributory equity point of view, it is reasonable for maximum pensions to be revalued only after workers have been exposed throughout their working careers to higher maximum bases.
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 there is for 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 and what we have agreed on. 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 give us contributions that improve the standard and this 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 fit very little with the evidence. First, because it is a fallacious debate to oppose the strengthening of the pension system at the expense of young people. It doesn’t have to be like that, you can have a system with enough pensions and that’s very important, and take a set of measures like the ones this Government is taking, which are very broad and support young people. On the contrary, maintaining the sustainability factor of the PP would indeed have been extraordinarily harmful to young people, because it would have meant a cut of at least 10% of the initial pension when they reached retirement.
The approval of the reform in Spain coincides with that of France, with great protest on the streets. Has France not done their homework on time?
The systems are very difficult to compare because France has, for example, 42 special pension schemes, which generate many disparities and burden the system’s expenditure. In addition, expenditure on pensions in France is three points of GDP higher than in Spain, and its legal retirement age is 62. 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 Pact of Toledo, which has been there since 1995, has contributed to having a system.
