The Government today approves the pension reform, which contemplates an improvement in the minimums and increases in contributions

MADRID, 16 Mar.

The Government today approves the pension reform, which contemplates an improvement in the minimums and increases in contributions


The Council of Ministers, meeting on an extraordinary basis, will approve 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, will be 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 so that the different parliamentary groups can negotiate the introduction of amendments.

The minister signed the agreement yesterday morning for the implementation of this reform with the general secretaries of the CCOO and UGT, Unai Sordo and Pepe Álvarez, and appeared at the Toledo Pact Commission in the afternoon to explain the content of the same.

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 for employees who retire in 2027, according to Ministry projections.

According to the Department headed by Escrivá, the reform, which has the backing of Brussels and Unidas Podemos, 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 0.6% to 1.2% until 2029.

These figures contrast, according to Escrivá, with the calculation estimated with the old sustainability factor. With this last element, the workers' entry pension would have been reduced by 2% in the case of a retiree in 2027 and by 10 points if the worker was currently 25 years old, the minister explained yesterday.

The head of Inclusion and Social Security also explained that the reform does not entail a "dramatic" increase in labor costs, so competitiveness will not be lost, as the CEOE has denounced in its arguments to reject the reform. "It is a plan distributed over time, very prudent, very gradual and that will not put the productive fabric of any company in Spain at any time," Escrivá highlighted.

These are some of the main measures included in the second leg of the pension reform:

- 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 gradually, from 2027 to 2038, the year in which the 29 years will be fully deployed (minus two).

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.

The goal is for the minimum contributory retirement pension to reach at least 16,500 euros per year by 2027 (1,178.5 euros per month for fourteen payments).

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

The reform also contemplates improvements in the coverage of contribution gaps and in the complement of the gender gap, which will rise an additional 10% to its annual revaluation in the 2024-2025 biennium.

- 'Audit' by AIReF: the Independent Authority for Fiscal Responsibility (AIReF) will publish and send to the Government, from March 2025 and every three years, an evaluation report on the impact of the measures aimed at strengthening the income of the system between 2022 and 2050.

If, after AIReF's evaluation, the average annual impact of the income measures is equal to 1.7% of GDP, the average gross expenditure on pensions in the period 2022-2050 may not exceed 15% of GDP. If it exceeds that 1.7% of GDP, pension spending may not exceed 15% of GDP plus the difference between the estimated average annual impact of the measures and 1.7%. And if the average annual impact of the revenue measures is less than 1.7% of GDP, spending may not exceed 15% of GDP minus the difference between the estimated average annual impact of the measures and 1.7%.

In the event that there is an excess in any of these three situations, the Government will propose possible measures to eliminate it. In addition, it will negotiate with the social agents to send a proposal to the Toledo Pact to correct this excess spending by increasing contributions or another alternative formula that increases income or reduces pension spending or a combination of both.

As a result of these negotiations, the Government will send a bill to Parliament containing the appropriate measures by September 30, which will enter into force on January 1 of the following year.

In the event that the law with the corrective measures for excess spending does not enter into force on January 1 of the following year, the MEI price will increase to compensate two tenths of the excess estimated by AIReF as of January 1 of the year. and another two tenths in each of the following years until new measures with the same impact are adopted or excess spending is corrected.