The Council of Ministers has approved in its second round the Draft Law guaranteeing the purchasing power of pensions and other measures to strengthen the financial and social sustainability of the public pension system.
The Council of Ministers, in its meeting of August 24, approved in its second round the Draft Law guaranteeing the purchasing power of pensions and other measures to strengthen the financial and social sustainability of the public pension system.
This text, which modifies the consolidated text of the General Social Security Law, includes a significant part of the recommendations approved by the Toledo Pact last autumn, which are also integrated into component 30 of the Recovery, Transformation and Resilience Plan.
CPI
The new regulation will establish a stable framework for pension increases. The new mechanism stipulates that pensions will be increased on January 1st of each year in accordance with the average annual inflation rate recorded in the previous year. In the event of a year with negative CPI, pension amounts will remain unchanged. This new mechanism fulfills Recommendation 2 of the Toledo Pact, guarantees the maintenance of pension purchasing power, and definitively corrects the formula introduced in 2013, the application of which has been suspended since 2018.
Passive classes
As a new feature, pensioners of passive classes will have the same regularization as the rest in terms of revaluation and incentives in delaying retirement.
Retirement
Furthermore, several measures are being incorporated to voluntarily bring the effective retirement age closer to the standard retirement age. In this regard, four courses of action: the review of early retirement, both voluntary and involuntary, and due to the nature of the work; deferred retirement; active retirement; and mandatory retirement.
Specifically, regarding voluntary early retirement, the coefficients will now be calculated monthly to provide greater flexibility for future pensioners and encourage voluntary early retirement, with more favorable treatment for those with longer contribution histories. Furthermore, the reduction coefficients related to early retirement will be applied to the pension amount itself, not to the regulatory base, as was previously the case.
Regarding involuntary early retirement, two aspects are improved: firstly, monthly coefficients are established instead of quarterly ones; and secondly, in relation to the two years immediately prior to the ordinary retirement age, the same coefficients as in the voluntary modality are applied in the determination of the involuntary early retirement pension in those cases in which the new coefficient is more favorable than the one currently in force, among others.
In the case of delayed retirement, the text establishes exemption from social security contributions for common contingencies, except for temporary disability, from the date of reaching the corresponding ordinary retirement age. And, most notably, the incentives, now consisting of three types for each year of delay:
- An additional percentage of 4%.
- A lump sum amount based on the pension amount and rewarding longer contribution histories.
- A combination of both options.
Regarding mandatory retirement, the bill stipulates that collective bargaining agreements may not include clauses that allow for the termination of an employment contract when the employee reaches an age of 68. This age limit may be lowered in certain sectors (CNAE codes) provided that the participation of women in those sectors increases.
Finally, within this line that seeks to promote the permanence of older workers in the labor market, a 75% reduction of employer contributions to Social Security for common contingencies is established during the situation of temporary incapacity of those workers who have reached the age of 62.
Strengthening the revenue structure
With regard to strengthening the system's revenue structure, the text establishes that the General State Budget Law will annually include a transfer from the State to the Social Security budget to finance various items that will allow the separation of funding sources to be completed, in compliance with the first recommendation of the 2020 Toledo Pact. This transfer was already included in the 2021 General State Budget.
The Bill, in compliance with recommendation 8 of the Toledo Pact, also refers to the creation of the State Social Security Agency, with the commitment to present a bill within six months, among other points.
Finally, the so-called 'safeguard clause' remains in its current regulation indefinitely.
The text has been reviewed by the Economic and Social Council, which has given it a positive assessment and indicated that it considers it essential "to maintain the same spirit of consensus that has guided the drafting of this preliminary bill when addressing its development over the coming months.".
In its first step through the Council of Ministers, at the beginning of July, the processing of the preliminary draft was already approved on an urgent basis.
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