Business 29/06/2021

This is what the pension reform will be like

Ministry and social agents close an agreement that declares war on early retirements

3 min
The Minister of Inclusion and Social Security, José Luis Escrivá, in an archive image.

BarcelonaThe Ministry of Inclusion and Social Security has closed a preliminary agreement this Monday with employers' associations CEOE and Cepyme and unions CCOO and UGT for the reform of pensions that involves the repeal of the reform the government of Mariano Rajoy carried out in 2013. It is also aligned with the planned reform included in the Recovery Plan presented in Brussels. ARA has had access to this document, which contains as its main points the revalorisation of pensions based on inflation, the abolition of the sustainability factor (which linked pensions to life expectancy) and the goal of delaying real retirement age (the average is now 64.6) to bring it closer to the legal retirement age (which is between 65 and 66). In addition, to reduce the Social Security deficit, the so-called improper expenses, such as non-contributory pensions, will be taken out of the general state budget, which will contribute 2% of GDP, about €21bn.

The agreement, which is only pending ratification by the management of employers' associations and which the Spanish government plans to pass on 6 July, leaves some of the most difficult aspects of the negotiation for later: the intergenerational equity mechanism, which will replace the sustainability factor, must be approved within the next five months and must be operational from 2027. Other pending aspects are the elimination of the caps on maximum pensions and the increase in the contribution of the highest salaries, the new contribution system for the self-employed according to their real income and the revision of number of years taken into account when calculating the pension.

This morning the Minister of Inclusion and Social Security, José Luis Escrivá, already advanced that the agreement was close. After closing the pact, UGT and CCOO have valued it very favourably because it reverses the PP's reform and guarantees baby boomers' pensions, the generation that will have the most pensioners, receiving higher pensions and with a longer life expectancy, said the secretary general of CCOO, Unai Sordo. UGT's secretary of European policies, Mari Carmen Barrera, stressed the importance of an "intelligent" and "balanced" agreement, which shows that the reform of 2013 was "unfair and unnecessary".


Pensioners not to lose purchasing power

The CPI of the previous 12 months will be the indicator to revalue pensions each year, replacing the 0.25% cap established by the PP when there was a state deficit. The agreement states that in the event of negative inflation, pensioners will not see their income reduced, but it will remain the same.

To try to balance the accounts of the Social Security, the State will transfer 2% of GDP to this body from the general budget. Some €21bn that the agreement details that will be to pay benefits to minors, bonuses to contributions and supplements to reduce the gender gap, among others.

Retire later

Incentives to work longer and cuts to early retirement

Retiring later will be rewarded. The agreement regulates incentives, which can reach 4% of the regulatory base for each year a worker delays retirement or a cheque ranging from €4,786.27 for the lowest pensions to €12,060.12 for the highest pensions with over 44 years of contributions.

The other way to extend retirement age is to reduce the amount of the pension a worker receives when taking early retirement. The percentage reduction will be monthly (not quarterly as it has been until now), and ranges from 2.81% for those who retire one month before the legal age to 21% for those who retire two years earlier and have worked for less than 38 years and six months.

Involuntary retirement

Fewer penalties for those forced to retire early

The agreement, however, recognises that sometimes workers take early retirement involuntarily. In these cases, the penalties will be reduced. In addition, the causes of involuntary early retirement are extended, such as forced transfers, non-payment by the employer or substantial modification of working conditions.

Limit on forced retirement

No one under the age of 68 may be forced to take early retirement

The agreement foresees that in the case of delaying retirement, no contributions will be paid for common contingencies, only for temporary disability, from the age of retirement onwards.

This agreement also prohibits forced retirement clauses for people under 68 years of age, and companies will have to hire a new employee if they force a worker to retire.

Other points of the agreement

Unmarried couples, scholarship holders and care for dependents

The agreement includes other modifications. Grant holders will pay contributions (with a 75% reduction) even if they do not receive any money for their work. The widow's or widower's pension in the case of unmarried couples will be equal to that of married couples. The law will also be modified for the public financing of the contributions of special agreements for carers of dependent persons, and the contribution base will be maintained for workers who reduce their working day to care for a dependent person.