26th September 2023
José Luis Escrivá
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Spanish government and unions hail ‘historic’ pension reform

Spain’s coalition government of the PSOE socialists and left-wing Podemos group has won the backing of unions to reform the nation’s public pension system, and which was officially approved at a cabinet meeting on Thursday.

The leaders of Spain’s the two main unions, the UGT and CCOO, had appeared alongside the Minister of Social Security, José Luis Escrivá, in Madrid on Wednesday, to christen the plan that the union heads both deemed ‘historic’. Click here for the PDF document of the reform (in Spanish).

CCOO secretary general Unai Sordo said that the reform would be key to ensuring pensions for Spain’s retired population, which he said is expected to increase from 10 to 15 million people by 2048.

‘This is about maintaining a pillar of our social welfare system,’ Sordo said.

The new deal signed off on by the unions aims to handle a looming boom in the number of retired workers by increasing the social security costs on businesses for higher-wage earners.

Spain has one of Europe’s fastest ageing populations and one of its highest rates of youth unemployment at around 30% — a cocktail that made tweaking its pension system a must.

A reform of Spain’s social security system was one of the requirements established by the European Union for Spain to continue receiving billions of euros from its post-pandemic recovery funds. Escrivá won approval from Brussels to go ahead with the plan last week.

‘I want to congratulate the government and above all Minister Escrivá for their ability to negotiate with the European Union, because this is a deal that has Europe’s backing and that has enormous importance for our pensions,’ said Pepe Álvarez, secretary general of UGT.

Spain’s leading business groups, including the CEOE, Cepyme and ATA, criticised the reform because, they said in a joint-statement, it ‘is regressive in its entirety because it means more years of work, more tax effort and less pension’.

The plan will need to go to the Spanish Congress to become law. Its passing would be a much-needed boost for the coalition of Prime Minister Pedro Sánchez ahead of local and regional elections in May and national elections in December, after recent spats between coalition members over the government’s sexual consent law.

Following the 2007-09 global recession that hit Spain hard, the government reformed public pensions so that workers could retire at age 65 if they had worked for 38.5 years. If not, they would have to wait until age 67. Spain’s average yearly salary is around €28,000, just below the EU average.

The key points of the latest pension reform:

Minimum pensions

The minimum contributory pension in Spain will increase by 22%, from €966.20 to €1,178.50 per month for those with a dependent spouse.

The reform also stipulates that the minimum contributory pensions must be worth 60% of the median income of a two-adult household, being €16,500 per year in 14 payments in 2027.

Maximum contributions

Maximum pensions will increase and be reevaluated on a yearly basis, taking into account the annual CPI plus an additional increase of 0.115% per year until 2050.

Dual model calculations

The reforms also introduce a ‘dual model’ calculation, meaning that pensions can be calculated either with the previous 25 years of contributions or with 29 years of contributions, of which the two worst, meaning lowest amount of contributions, can be excluded. This new option will be introduced progressively, from 2027 to 2038.

The self-employed

A so-called ‘observatory’ body will also be created to improve the effectiveness and coverage of pensions for self-employed workers. Students who undertake internships in companies or other institutions will also be integrated into Spain’s social security system.

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