Changes to Spanish pension system presented

by Lorraine Williamson
Spanish pension system

MADRID – The government, together with trade unions and employers’ organisations, present the first reforms of the Spanish pension system. Pre-pension will become even less attractive in Spain and one of Rajoy’s measures will be withdrawn. 

Negotiations of the Spanish pension system reforms have been going on for more than six months. These are the most important agreements made to date. And as such, will come into effect as soon as all parties agree on all outstanding measures . 

Indexation pension according to CPI 

At the beginning of each year, pensions are indexed to the consumer price index (CPI) of the previous 12 months. If the CPI is negative, the pensions will remain the same instead of being adjusted downwards. 

Financial incentive for postponing retirement 

The 4% increase in the pension for each year that the employee postpones his or her retirement can be replaced by a one-off payment. However, this amount depends on the pension figure due to be paid.  And also the period in which the employee decides to postpone retirement. 

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Pre-pension even less attractive 

Furthermore, early retirement is to be made financially less attractive. If the employee decides to resign, he or she will surrender up to 30%. This happens if the employee stops working four years before retirement age and if pension contributions have been paid for less than 38.5 years. However, if it concerns a regular early pension, the extra tax on the pension could be up to 21%. 

Withdrawal of shelf life factor Rajoy 

The sustainability factor (factor de sostenibilidad) was introduced by Rajoy in 2013 during one of the most sweeping pension reforms in Spain. This factor linked the amount of the pension to life expectancy. Rajoy’s sustainability factor will be replaced by a new system to ensure an even distribution of pensions, taking into account intergenerational interactions. The exact interpretation of this will be discussed further. 

The new agreement stipulates the state will transfer an amount to Social Security each year to continue financing the pension system in Spain. This amounts to about 2% of GDP. According to Spain’s largest trade union, Comisiones Obreras, this additional funding of the pension system is needed at least until 2050. 

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