The big change that Minister José Luis Escrivá had to make in his plans to reform pensions was when he came to the conclusion that neither Podemos nor the unions would accept the extension of the calculation period, even if with conditioning, and dedicated himself to looking for alternative formulas. He certainly found them, through the coexistence for no less than two decades of the two systems: the current 25-year-old and the new 29-year-old, deleting the last two exercises. But this comes at a price. The reform was no longer neutral and new income had to be found. Escrivá squared it with three new sources of contributions, which tax social contributions and especially the highest incomes, and with a safety mechanism that will be set in motion automatically if spending skyrockets.
The three new forms of income are the elimination of the ceiling on maximum pensions, the reinforcement of the intergenerational equity mechanism (MEI) and the solidarity quota for salary sections that exceed the maximum contribution limit. When all these measures are fully deployed, the Spanish Government estimates that Social Security will collect 15,000 million euros each year. The aim is to cover an expenditure on pensions that will increase, both due to the retirement of the baby boom generation, as well as the new benefits incorporated, as well as the increase in minimum pensions, the largest supplement of the gender gap and more adequate coverage of the gaps in professional careers.
If spending on pensions now takes up 12% of GDP, this percentage is expected to increase until it reaches 15%. This is where the new system, in addition to new sources of income, adds a safety mechanism that will automatically increase income if certain limits are exceeded. In other words, MEI contributions will increase.
In the document that was given to social agents on Friday, and to which La Vanguardia has had access, it is indicated that the Independent Fiscal Responsibility Authority (Airef), starting in March 2025, will evaluate the average annual impact every three years of the measures adopted as a percentage of GDP. To do this, it will take as reference the latest Aging Report published by the European Commission. “If the average annual impact of income measures is equal to 1.7% of GDP, Airef will verify that the average public expenditure on pensions in the period 2022-2050 of the latest aging report does not exceeds 15% of GDP”, the proposal states. Airef will do the same exercise if the impact is higher or lower than 1.7%.
Based on the Airef report, alarms can be activated if deviations have been detected. The first alarm prompts the Government to act to correct the problem “by means of an increase in contributions or another alternative formula to increase income or a reduction in pension expenditure as a percentage of GDP or a combination of the two measures”.
However, if the Government does not act in time, the second alarm would go into operation, an automatic mechanism. “The contribution of the intergenerational equity mechanism will increase to compensate for two tenths of the excess estimated by Airef from January 1 of the publication of the Airef Report and another two tenths in each of the following years until new measures with the same impact are adopted or the excess net expenditure is corrected”, says the proposal.
Once Escrivá’s plans became known, the employers’ criticism was resounding, accusing the Government of “receiptary greed” for the increase in social contributions, which basically fall to companies. In the case of the MEI, of a 1.2% contribution that it expects to reach, 1 point corresponds to companies and two tenths to workers. As for the solidarity fee, of the 6% that you will have in the end, 5% will be paid by the company and 1% by the worker.
However, Escrivá rejects that there is a loss of competitiveness. Their argument is that when the measures are fully deployed, in 2050, they will amount to less than 40 cents per hour worked and the contributions will remain well below the euro zone average”.
