Better salaries mean better pensions
It is evident that a high salary level and a long working career translate into higher pensions or at least sufficient ones for a dignified life after the active working stage. And even more so if public benefits, which have a ceiling, are updated in relation to the consumer price index (CPI). There is an important element that explains a good part of the evolution that benefits have undergone in recent years, and that is the disappearance of the old revaluation index, which limited increases to 0.25% per year. This cap established by the government of Mariano Rajoy (PP) meant that the remuneration received by pensioners remained frozen in real terms, meaning they did not gain purchasing power, especially in periods when inflation was higher. Once the government of Pedro Sánchez (PSOE) recovered in 2022 the revaluation in relation to the CPI – which is calculated in November of each year with respect to the previous year with an increase that is applied the following January – the annual update has improved.
The evolution over the last two decades reveals that pensions have gained purchasing power over the entire period, even though they have not done so in some years. Specifically, they have doubled in these 20 years. And over this period, they have surpassed salaries, which have suffered even more years of value loss in relation to the general price index, especially during the crisis periods after 2008 and with the consequences of the covid pandemic. What is true is that the incorporation as pensioners of the baby boomers – the population born between the late 1950s and mid-1970s – has a significant impact on the public benefits system.
These are people who were part of a demographic boom and who have also had a long working life and high salaries during the final part of their active life, which weighs on the calculation of the pension to be collected. Hence, the average pension of new entrants in July soared to 1,707.23 euros, which represents a larger proportion of the average salary than the system's average benefit (1,574.9 euros), which also grows as a consequence of the increase in the number of new beneficiaries, according to the data provided by the Social Security.
What the data reveal is that only with long and stable working lives and with salary levels (salaries, unlike pensions, have no limits) that gain purchasing power will the system of public retirement benefits be strengthened. Labor precariousness, job instability, and the commitment to low wages that do not allow one to buy or rent a home will only diminish a model that was born with a vocation for intergenerational solidarity. Workers in active employment pay, through social contributions on their payslips, the pensions of those who retire and generate future rights to receive them.