Business 16/11/2021

How the agreement for baby boomers' pensions will affect your paycheck

Contributions will increase by 0.6% but the bulk will be assumed by employers

2 min
Escrivá raises contribution increases to 0.6 points

BarcelonaAfter months of negotiation, finally this Monday the Spanish government has reached an agreement to move forward with the mechanism that has to guarantee baby boomers' pensions. However, Sánchez's government only signed the pact with the unions, since employers walked out of the negotiations. But what was the final agreement? These are the five keys:

  • The mechanism

The formula to guarantee pensions for baby boomers, the vast majority of which will begin to retire in 2030, is called the intergenerational equity mechanism. It will replace the controversial sustainability factor that the PP approved in 2013, which linked the increase in pensions to life expectancy. In practice, it meant a cut in pensions in the future, but it was never fully implemented.

  • How does it work?

It consists of increasing Social Security contributions by 0.6% over a period of ten years. It will start to be applied in 2023 and will last until 2032. This increase will be assumed by companies and, to a lesser extent, by workers. Specifically, employers will be responsible for 0.5% and employees for 0.1%.

  • Will it affect workers' salaries?

Yes, this 0.1% that will be borne by employees will result in a reduction in salary. For example, a worker who earns €2,000 gross will have his salary cut by €2 (the equivalent of 0.1%). As for the company, it would pay €10 more per month for this worker.

  • Where will this money go?

To the pension reserve fund. According to the governments' calculations, this increase over ten years will bring in €40bn euros.

  • When will it start to be spent?

From 2033, which is when there will be a surge in retirements, and every three years there will be a review to see if the measure is sufficient. If not, possible options include further increases in contributions or cuts in pensions. In both cases, however, there would be new negotiations with businesses and unions.