The agreement of the Pacto de Toledo on pensions reached by the Monitoring and Evaluation Commission has been closed last Friday 23rd October. The agreement closed last Friday 23 October for the renewal of EU recommendations is the prelude for the Spanish Government to carry out a pension reform.
Although most of the changes to the reforms applied in 2011 and 2013 have been maintained, some modifications are proposed. These changes are in areas such as early retirement, the necessary contributions and the revaluation system.
In addition, the agreement states that the financing of the pension system must be adapted to the protection of the system. To this end, social contributions, although they continue to constitute the basic source of income, must be accompanied by other ways of ensuring the sustainability of the system and the sufficiency of pensions.
Agreement of the Pacto de Toledo on pensions
The main contributions of the new pact are listed below.
The Commission has rejected the replacement of the current pay-as-you-go system by a capitalisation system.
Clean-up plan for the accounts
It will consist of removing from the pension system expenses detected as improper in order to start assuming them from the General State Budget and not from the Social Security accounts.
CPI as a reference for annual updates
Annual pension revaluations will be linked to the CPI again
Maintenance of the minimum quotation period
The minimum contribution period for access to a pension is 15 years.
Penalizing early retirement (with exceptions)
The conditions for early retirement will be tightened (higher penalties). However, there are exceptions to this tightening:
- From 2022, the number of years required to calculate the pension will be 25, but the choice of the best years (the highest bases) will be made in order to avoid gaps in contributions that will affect the pension bill.
- The government will be called upon to assess which groups could benefit from exceptions to the penalties, protecting long contribution careers.
The focus will be on business plans, favouring this type of mechanism in the field of collective bargaining and proposing tax improvements for this type of system.
Employed and self-employed workers
The commission is committed to moving towards full equality of the rights and obligations of the self-employed with those of the general regime, by approximating the contribution bases.
Measures to promote employment contracts, especially with workers over 55 and groups of people with disabilities or at risk of social exclusion and victims of gender-based violence, will be encouraged.
Combating pension fraud
In order to make the fight against pension fraud more effective, emphasis is placed on the need for all administrations to be able to cross-check data with social security data, and to strengthen inspection and sanctions.
Improving lower pensions
The agreement includes the recommendation to improve lower pensions. It also calls for work on reducing the gender gap.
This is one of the points with the most modifications.
- The commission advises encouraging workers to stay in employment, so that the real retirement age (above 64 at present) is closer to the legal age (65 years and 10 months in 2020, will be 67 in 2027). In addition
- It calls for measures to extend working life voluntarily by reconciling pension and income from a professional activity.
- It points out that early retirement should be “reserved” for workers with long careers of contribution, to avoid it being used as a means of regulating employment.
- Call for an analysis of the damage caused by the penalty for early retirement (cuts of up to 28%) and for these to be modified using three criteria:
- whether retirement is voluntary or forced
- number of years quoted
- sector in which it is produced.
Widow’s and orphan’s pensions
The Toledo Pact proposes a reform of the widow’s pension in the light of social changes compared to those of several decades ago. It calls for an improvement in the provision of benefits for pensioners with no other resources, especially those aged 65 and over, and an adjustment in the provision of benefits for less vulnerable groups of widowers. As for orphans, it calls for an improvement in their numbers.
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