The agreement requires extending the calculation period to the end of 2022
Brussels has demanded that Spain extend the period used to calculate pensions to receive recovery funds and the Executive has accepted. This measure appeared in the drafts of the plan that the Government managed at the end of 2020, but the final document sent to the community capital did not specify it and left it in ambiguous wording. Finally, the Operational Agreement or the contract for the implementation of the Spanish recovery plan that the European Commission and the Government have signed is clear when it sets for the end of 2022 the “entry into force of the adjustment of the calculation period, extending it for the calculation of the retirement pension”, as can be read in the document released this Wednesday.
The same text includes the promise to increase the maximum contribution bases and, progressively, the maximum pensions. It also includes the commitment to replace the sustainability factor with the mechanism of intergenerational solidarity. The first was introduced in the 2013 pension reform, although it has not yet come into force, linking life expectancy to the initial pension received by those who retire. Now the Executive is negotiating a new mechanism with social agents to guarantee equity in the treatment of different generations and must have an impact evaluation.
The contract signed between Brussels and Madrid is a document that the Commission usually signs with the Member States every time it delivers funds. They contain in a very detailed and schematic way the commitments of the two parties and their fulfillment is necessary for the money to arrive. In this case they are the almost 70,000 million euros in subsidies, that is, non-refundable resources, to recover from the blow that the coronavirus pandemic has caused to the economy. Normally these documents are not made public, but on this occasion the Executive led by Ursula von der Leyen was especially interested in making them come to light, so this Wednesday afternoon they released the 346-page document. It includes all the reforms to which Spain is committed and their deadlines, among them the three most important: labor reform, pension reform and tax reform.
Although this commitment to increase the pension calculation period was included in an annex to the Council decision that approved the Spanish recovery plan in June, it is now a formal agreement signed by the Minister of Finance, María Jesús Montero, and the European Commissioner for Economy, Paolo Gentiloni.
From the beginning, Social Security has considered the option of increasing the pension calculation period, although this caused a major clash between the PSOE and Unidas Podemos, the parties that make up the Executive. In the drafts handled by the department headed by José Luis Escrivá, the possibility of increasing the pension calculation period from 25 years to 35 years was detailed. This would mean giving continuity to the 2011 pension reform, a measure that the Spanish Fiscal Authority (Airef) has always proposed, already when it was directed by the current Minister Escrivá. According to this reform, the number of years taken to calculate the pension of new retirees gradually increased from the last 15 years contributed by the worker to the last 25 between 2013 and 2022.
Precisely what was agreed with Brussels would mean not stopping the counter next year and continuing to increase it in 2023, although a figure is not specified.
Increasing the pension calculation period translates for the majority of workers into a reduction in the pension they would have upon retirement. In fact, in those drafts prepared by Social Security in December 2020, the impact of this measure on the 2011 reform was estimated at an average reduction between 4.5% and 3.9% and calculated that if it reached 35 years the reduction would be 6.3%. It must be taken into account that these numbers are prepared on theoretical assumptions with only one of the parameters used to calculate the pension; if, for example, the salary increases, the impact changes. It should also be noted that such a measure greatly favors those who lose their job in the last years of their working life and do not find one again, a group that is growing more and more in the Spanish labor market, especially after the workforce adjustments of the previous crisis. Furthermore, if buffer mechanisms are finally introduced, such as choosing the best contribution years or the option to fill contribution gaps, the impact may be neutral.
Along with this measure, the increase in the maximum contribution bases and, “progressively”, the maximum pensions is also contemplated so that the system does not lose contributoriness. Translation: there must be a certain relationship between what you pay and what you receive when you retire. This principle has always been present in the Spanish pension system, but in recent years it had been somewhat diluted by significantly increasing the bases (the reference used to calculate what is contributed) and much less the maximum pension.
Regarding labor reform, the document, in addition to the best-known commitments, also contemplates a reform of unemployment insurance for the end of next year to extend its coverage.
Source: EFE
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