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A Pension Reform With An Uncertain Course

In reality, these changes will only affect current contributors, trying to delay their retirement age and increasing pressure on companies to manage the natural renewal of their workforce.

The Draft Law on the guarantees of the purchasing power of pensions does not imply a real reform . The main reason is that the measures it contemplates will not prevent the pension deficit from increasing , due to the retirement of the baby boom generation and the revaluation.

In reality, these changes will only affect current contributors, trying to delay their retirement age and increasing pressure on companies to manage the natural renewal of their workforce.

Analyzing the main measures of the Bill , we find, firstly, that contributory Social Security pensions will grow with the average CPI of the 12 months of the previous year.

If we take into account that inflation has shot up to 4% in September, the increase in pension items, in the absence of knowing the CPI for October and November, would be more than five billion euros.

On the other hand, measures and incentives are established to delay the retirement age. For example, it is foreseen that collective agreements cannot establish clauses that make it possible to terminate the contract of workers under the age of 68.

According to the text, the worker affected by the termination of the contract must meet the requirements demanded by the Social Security regulations to be entitled to one hundred percent of the ordinary retirement pension in its contributory modality.

Along the same lines, an increase in the benefit is proposed for those who choose to retire after 67 years (or 65 years with 38.5 years of contributions) and have covered the minimum contribution period to be entitled to the retirement pension(fifteen years, of which at least two must be within the fifteen years immediately prior to the moment of causing the right). In these cases, they may avail themselves of two options:

An additional percentage of 4% for each full year of contributions between the date of reaching said age and the date of the event causing the pension, or or a lump sum, depending on the the amount of the pension and rewarding the longest contribution careers. In this second case, the single payment will range from a minimum of 4,786.27 euros to a maximum of 12,060.12 euros.

Following the idea of ​​active retirement, the future norm contemplates that the retirement pension is compatible with the performance of any work as an employee or self-employed.

Two issues must be considered: first, access to the pension must have taken place at least one year after reaching the applicable age in each case (67 years or 65 years if you have contributed 38.5 years ). Second, the percentage applicable to the regulatory base, in order to determine the amount of the pension, must reach one hundred percent.

In short, the amount of the retirement pension compatible with work will be equivalent to fifty percent of the amount initially recognized. This will be the case at the start of job compatibility. However, if the activity is carried out on one’s own account and it is proven that at least one employee is hired, the amount of the pension compatible with the job will reach one hundred percent.

In the case of early retirement, we also observe changes . The aim is to bring the real retirement age (64.6 years) closer to the ordinary age (67 years or 65 years with 38.5 years of contributions).

To do this, the reduction of the pension will be made taking into account each month or fraction of the month that the worker is missing from reaching the legal retirement age. Different coefficients would be applied depending on whether they are causes not attributable to the worker or by his will, the credited contribution period and the months in advance

The main thing about this change is that the reduction coefficients will be applied on the pension and not on the regulatory base. Also, it would be done monthly instead of quarterly.

The application of the reducing coefficients on the amount of the pension means that these changes affect in a much more significant way those workers who contribute by the maximum base. In these cases, if they voluntarily anticipate their retirement two years, they will have a penalty on their pension of 21%, compared to the current 4%.

Another aspect of the Bill is that an intergenerational equity mechanism is approved to replace the sustainability factor , although its implementation remains in the hands of the Government’s negotiation with the social agents.

Finally, it should be noted that the Law of General State Budgets will contemplate annually a transfer from the State to the Social Security Budget. This financing does not imply any reform of the system. It is indifferent that the Social Security is nourished only by contributions or that it receives transfers from the State. In the end, these transfers from the State lead to a deficit that will have to be financed via Public Debt or via taxes.

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