Pensions in Spain: agreement to make high incomes contribute more

Pensions in Spain: agreement to make high incomes contribute more

Summoned to act by Brussels to rebalance your pension system, threatened by the aging of the population, Spain has reached an agreement. The country will make more use of the highest incomes, the left-wing government said on Friday.

The executive had already announced, in November 2021, an agreement providing for an increase in contributions without postponing the legal retirement age, which must rise to 67 years old in 2027. But the Prime Minister’s government Pedro Sanchez had yet to reach an agreement on the period of work taken into account for pensions – a source of tension between the Socialists and the radical left party Podemospartners in the ruling coalition.

The amount can be calculated over the last 29 years

The mechanism finally adopted provides for the amount of pensions to be calculated, as desired, on the basis of the last 25 years of contributions (as is the case today) or on the last 29 years – excluding in this second case the two worst years.

It also plans to increase the contribution base, i.e. the part of the salary on which employees contribute, by raising the ceiling beyond which employees are no longer deducted from 4,139 to 4 495 euros per month, so as to generate additional income.

Finally, it endorses a doubling by 2029 of the rate of contribution to the “intergenerational equity mechanism”, which feeds the “reserve fund”, created to deal with the tensions expected when the “baby boom” generation – which occurred in Spain in the 1960s – will reach retirement age.

“Opposition” from employers

This reform, to which Brussels has given the green light, “will guarantee the purchasing power of pensioners, will strengthen the fairness of the system and will guarantee the viability of our public system for decades to come”, welcomed Pedro Sánchez during a press conference.

In a joint press release, the two main trade unions, the UGT and CCOO, said they also judged the government’s plan “positively”, ensuring in particular that the new calculation formula would make it possible to “improve” the pensions of “workers” who have known “unstable” careers.

The CEOE, the main employers’ organisation, on the other hand, expressed its “frontal opposition” to the reform: its cost “will be borne by the country’s workers and companies through a general increase in contributions which will reduce wages and will increase the cost of labour, jeopardizing job creation,” she said.

Second lowest birth rate in Europe

This new method of calculation, intended to ensure the viability of the pension system, was one of the main counterparts demanded by Brussels in exchange for the granting of funds from the European mega recovery plan, of which Spain is one of the main beneficiaries with 140 billion euros.

The problem of pensions in Spain is made particularly acute by demography. The country thus combines the second lowest birth rate in Europe (1.19 children per woman) with a high longevity, over 83 years on average.

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