The Government approves the pension reform that will allow choosing from 2027 to 2043 how to calculate the pension

Escrivá estimates that the 'pension piggy bank' will reach between 120,000 and 130,000 million in the 1940s thanks to the increase in the MEI.

The Government approves the pension reform that will allow choosing from 2027 to 2043 how to calculate the pension

Escrivá estimates that the 'pension piggy bank' will reach between 120,000 and 130,000 million in the 1940s thanks to the increase in the MEI

The Council of Ministers, meeting on an extraordinary basis, has approved this Thursday the second phase of the pension reform, which includes increases in maximum bases and contributions, improvements in minimum pensions and the establishment of a dual model to calculate the pension , which will give the option to choose between the last 25 years of contributions or 29 years, discarding in this case the two worst.

The reform, agreed with the CCOO and UGT and rejected by CEOE, has been approved as a Royal Decree-law, although the Minister of Inclusion, Social Security and Migration, José Luis Escrivá, has opened up to process it as a bill in Congress to that the different parliamentary groups can negotiate the introduction of amendments.

This second leg of the pension reform, which has been negotiated with Brussels and has the endorsement of United We Can, is one of the milestones linked to the fourth disbursement of European funds. With it the total package of changes in the Social Security system adopted in this legislature and included in the Recovery Plan is completed.

In the press conference after the Council of Ministers, the Government spokesperson, Isabel Rodríguez, assured that the Government is "very satisfied" with this reform, while Minister Escrivá stressed that this rule "culminates the modernization" of the pension system and supposes an "extraordinary reinforcement" of the first pillar of the Welfare State.

The new pension reform will mean an increase of almost 20,000 euros in the future retirement of 25-year-old workers and of almost 5,000 euros in employees who retire in 2027, according to Ministry projections.

The Department headed by Escrivá estimates that the reform will imply a "substantial" increase in the pension, largely due to the progressive rise in overpricing established by the Intergenerational Equity Mechanism (MEI), which will go from the current 0.6% to 1 .2% in 2029.

The income from the MEI will go to fatten the pension Reserve Fund, the so-called 'piggy bank' which, according to the minister, starting with just under 3,000 million euros this year, will accumulate by the mid-40s between 120,000 and 130,000 million euros, double what it had in 2011 (68,000 million euros), so far the highest figure.

These funds, he has indicated, will be disbursed "in a prudent and flexible manner" between the early 2030s and until the early 2050s so that the system can face the financial stresses derived from the retirements of the 'baby boomers'.

Faced with the CEOE's warnings, Escrivá has denied that this reform is going to put at risk "in no case the extraordinary" evolution of employment, with almost one million more jobs than in the pre-pandemic period and a first quarter of the year that will present record figures. , with around 250,000 more jobs.

MAIN MEASURES OF THE REFORM

The minister has reiterated that the Government sees "favourably" that the reform is processed as a bill and has assured that it will be "open to all those contributions that can improve" the text, whose main measures are the following:

- Dual model to determine the amount of the pension: this can be calculated either with the last 25 years of contributions or with 29 years of contributions, from which the two worst can be excluded, so that in practice the calculation in this second case will be 27 years old. This new option will be introduced progressively, from 2027 to 2038, the year in which the 29 years (minus two) will be fully deployed.

Until 2040 it will be possible to choose between this option and the last 25 years, while between 2041 and 2043 the 25-year option will increase at a rate of six months per year, from 25.5 years in 2040 to 26.5 years in 2043, being able to be chosen between this period or 29 years (minus the two worst). As of 2044, you will no longer be able to choose and the pension will be calculated with 27 effective years of contribution (29 years minus the two worst). Ex officio, while the two alternatives exist, Social Security will always apply the most advantageous for the worker.

- Solidarity quota: a contribution is established for the part of the salary that does not contribute due to exceeding the maximum contribution base. This will be 1% in 2025 and will increase at a rate of 0.25 points per year until it reaches 6% in 2045 (5% by the company and 1% by the worker).

- Intergenerational Equity Mechanism (MEI). The current overpriced MEI, of 0.6%, will rise to 1.2% in 2029, at a rate of one tenth per year and with the following distribution: 1% paid by the company and 0.2% paid of the worker This premium will remain at 1.2% from 2030 to 2050 and may increase automatically if pension spending exceeds 15% of GDP.

- Maximum bases: the maximum contribution bases will rise annually with the CPI plus a fixed amount of 1.2 points between 2024 and 2050. This will imply an accumulated increase of 38% until 2050. The Government will evaluate every five years within the framework of the dialogue the increase in the maximum contribution bases and will send a report to the Toledo Pact Commission.

- Maximum pension: the maximum pensions will be revalued year by year with the annual CPI plus an additional increase of 0.115 cumulative percentage points each year until 2050, which will mean an increase of approximately 3%. From 2051 to 2065, there will be additional increases so that by the end of the period, in 2065, the maximum pension will have increased cumulatively by 20%. As of that year, the convenience of achieving a total increase of 30% will be assessed.

- Increase in minimum contributory pensions: a convergence path is established for minimum contributory pensions to ensure that, from 2027, they are not below the poverty threshold calculated for a household made up of two adults. Thus, taking the evolution of the minimum pension with a dependent spouse as a reference, they will gradually rise between 2024 and 2027, above the average revaluation of pensions, therefore, above the CPI.

The goal is for the minimum contributory retirement pension with a dependent spouse to reach at least 16,500 euros per year in 2027 (1,178.5 euros per month for fourteen payments), 22% more than now.

- Improvement of non-contributory pensions: these will also grow above the average revaluation of pensions, until they converge in 2027 with 75% of the poverty threshold calculated for a single-person household.

- Coverage of gaps and gender gap: coverage of contribution gaps is improved for women and the gap complement will rise an additional 10% to its annual revaluation in the 2024-2025 biennium.

- AIReF 'monitoring': the Independent Authority for Fiscal Responsibility (AIReF) will 'monitor' the reform so that pension spending does not exceed 15% of GDP. To do this, it will publish and send to the Government, from March 2025 and every three years, an analysis report on how income is evolving.

In the event that excess pension spending is detected, measures will be proposed to the Toledo Pact to eliminate it via an increase in contributions or another alternative formula that raises income or reduces pension spending or a combination of both.

In any case, if these measures are delayed over time, the MEI price is expected to increase to offset two tenths of the excess estimated by AIReF as of January 1 of the following year and another two tenths in each year. of the following years until new measures with the same impact are adopted or the excess spending is corrected.

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