The pension reform should have been closed last year, but finally, in 2023, José Luis Escriva completed the structural reform of the pension system. The “easy” part—the one that ties benefits to inflation, improves incentives for those who delay leaving the labor market, and worsens pensions for those who do so before reaching adulthood—was ready in 2021, but is yet to come adapt to the most important parts of the puzzle.

This measure was the last significant measure of the minister before the transfer of the portfolio to the Minister of Economy and Finance of Navarre, until November this year, Elma Saiz. And so now it will be up to her to champion a reform she didn’t plan for and that is focused on trying to shore up the system’s revenues in the face of what will be the country’s toughest years yet as the largest generation ever lived retires. baby boomer This is the challenge the country faces between now and 2050, so complex that the norm is to evaluate reform every five years.

For this reason, and to try to reduce the impact of each, different aspects of the reform will be applied gradually, which will also reduce criticism from social agents of those parts of the reform with which they no longer agreed but eventually accepted. The Vice-President and Minister of Labor, Yolanda Diaz, spoke out together with the trade unions against the extension of the pension calculation period, which could have shortened it, which subsequently went unnoticed.

What follows is an overview of reform measures that are expected by law and must be implemented over the next few years and that may cause particular social resonance.

Extension of the billing period

The main obstacle in the negotiations was overcome by advancing the implementation of this measure. But extending the pension accrual period is what is planned, although this may harm some benefits. In the period from 2026 to 2038, the future pensioner will be able to choose between a calculation period of 29 years, discarding the two with the worst quotes, or remain with the current 25-year period. This system will remain in place for these 12 years and then gradually evolve, so that from 2044 there will no longer be a choice.

Under such a rollout, workers would not have a “huge incentive” to retire earlier, as might have happened if the change had been more abrupt, while at the same time the possible backlash to the measure would be reduced. Researchers from a group of pension experts at the University of Valencia, who in December produced a first approximation of the impact the minister’s proposal would have, warned that women would suffer, as well as those with longer careers because their bases are more stable. , but the same applies to people with shorter careers, because the extension causes them to include more gaps in contributions, that is, periods during which they were not working. In the same sense, those who have irregular careers benefit from more stable careers.

Rising prices

The Intergenerational Equity Framework (MEI) is a formula designed to boost system revenues to accommodate baby boom retirements without cutting benefits for those workers. If in the first part of the pension reform it was decided to increase by 0.6 percentage points the contributions that all workers pay monthly to the social security system, then in the second this bonus was doubled. With the change in salaries, contributions will be paid 1.2 percentage points higher than those that existed before the reform (0.6+0.6), but this increase will not be sudden.

Starting in 2024, employees’ social contributions will increase annually by one tenth until they reach 1.2 in 2029: this year the increase was 0.6 percentage points, in 2024 the increase on last year’s contributions will be increased by one tenth and will reach 0.7. , in 2025 it will reach 0.8, in 2026 it will reach 0.9 and so on until it reaches 1.2 in 2029. And that increase will be split between what workers pay and what the company pays to the same extent as it does today. .

So far, workers contribute 4.7% of their Social Security contribution base, and companies contribute 23.6%. With the MEI coming into effect in January last year, the contribution of workers was 4.8% (up 0.1) and companies’ contribution was 24.1 (up 0.5). In 2029, the contribution of workers will be 4.9%, and companies – 24.6%, as long as social security maintains its current stable proportion, according to executive sources.

Increasing the maximum contribution base

In Spain, wages contribute more or less to social security depending on their amount, but this progressivity breaks down when a worker earns more than €54,000 per year. From this figure, the contribution remains the same regardless of whether the employee receives 70,000, 90,000 or 200,000 euros per year.

Until now, every general government budget discussion has decided how much this limit, known as the maximum contribution base, will be increased. Thanks to the reform, from 2024 to 2050 this limit will increase annually by the annual CPI plus 1.2 points. And, therefore, maximum pensions will increase, but significantly less, at a rate of 0.1 points per year more.

Payment for solidarity

Between 2025 and 2045, there will be a contribution supplement that does not give the right to a better pension and which is called the “solidarity payment”. It will only affect income above the maximum contribution, so it represents a second increase in contributions for the highest salaries (from €54,000 per year). According to the latest changes, the quota will vary depending on the salary level and will be progressive: in 2045 the contribution rate will be 5.5% for those whose salary is between the maximum base and 10% more; 6% for salaries exceeding the maximum base from 10% to 50%; and 7% when the salary exceeds the maximum base by 50%.

On the other hand, the pension law also includes an increase in minimum pensions, which are raised until they reach 60% of the median income of a two-adult family in 2027, and non-contributory pensions until they reach 75% of the subsistence level has been reached. threshold calculated for a single-person household, which is expected to occur in 2027. Likewise, the compensation set for difference in contributions (those periods in which workers contribute less to social security) and the gender gap bonus are improved.