The Government proposes a temporary increase in contributions to guarantee the pensions of the ‘baby boom’.


The negotiation of the ‘mechanism of intergenerational equity’ (MEI) has already begun. The social dialogue table between the Social Security and social partners have started with an “initial approach” of this instrument, explained the Ministry led by José Luis Escrivá. The MEI is responsible for replacing the sustainability factor of the PP reform, but without causing the high cuts of this. The Government proposes to temporarily increase, for ten years, the social contributions paid by companies and workers with the aim of creating a cushion of income for the retirement of the so-called baby boomers, according to the draft to which elDiario.es has had access.

The sustainability factor now claimed by the PP would cut future pensions, especially for young people.

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The Executive had announced the mechanism of intergenerational equity as a tool that seeks to guarantee the pension system in the coming decades given the increase in the number of pensioners (and pension spending) that will take place with the retirements of the very large baby boom generation.

The Government’s challenge is to replace the unilateral sustainability factor of Mariano Rajoy’s 2013 pension reform, but with a different tool that does not entail massive cuts in future pensions – especially those of the now young – as the PP indicator did.

A two-phase mechanism

The MEI presented by the Social Security this afternoon is planned in two phases. The first would be deployed in any case, which is the one that seeks to ensure a cushion of income to Social Security for the retirement of the baby boomers, and the second would only be activated if this money is not enough and there are still spending tensions in the system.

The firstThis phase, or “component” of the equity mechanism (as Social Security calls it), consists of a temporary increase in the social security contributions paid by companies and workers over the next ten years. The Government’s approach is that this additional contribution (of 0.5 percentage points) would begin in 2023, until 2032, and that the money collected would be allocated to the Social Security Reserve Fund, better known as the ‘pension piggy bank’. This, which came to accumulate almost 67,000 million, was emptied mainly during the mandate of Mariano Rajoy and now only has less than 2,000 million.

The second phase is what Minister Escrivá calls “contingent”. That is, it would only be activated if necessary from 2032 onwards. What is proposed in particular? The Government proposes that from then on, and every three years, to verify whether the expected level of spending on pensions in 2050 “exceeds the forecasts” for that year of the report of the European Commission in 2024, discounting the effect that would have had the sustainability factor.

If in these revisions the estimated level of expenditure for 2050 is lower than the threshold forecast by Brussels, no measure would be applied. In addition, the use of the funds collected in the ‘pension piggy bank’ to “reduce social contributions” or “improve the amount of pensions” could be considered. This would be a kind of return after the effort of additional contributions to the system.

But if the expected expenditure in the three-year follow-up were higher than the threshold set for 2050, the Executive proposes that more measures would be applied. The first response to this situation is detailed in the draft: it would be to have the money from the Reserve Fund to finance the expected overspending on pensions, with an annual limit of 0.2% of GDP.

And what if this support were not enough either? If these funds do not cover the deviation from the expected expenditure, it is proposed that the government in power at that time negotiate with the social partners, and then in the Toledo Pact, “a proposal aimed at reducing the percentage of pension spending. These measures, which are not detailed in the document, should compensate for the deviation in the expenditure forecast “with a limit of 0.4% of GDP”.

To reduce spending on pensions, very different types of measures can be taken. Generally, when talking about reducing spending, options such as reducing the amount of the pension, delaying the time of retirement, touching elements that affect only certain groups (early retirement, delayed retirement…), etc. are considered. In any case, the SeguThe Social Welfare Committee proposes that this should be negotiated in the future, only if necessary.

Finally, if all these measures – including those to reduce spending – are still not enough to deal with a projected deviation in pension spending by 2050, it is proposed that the executive in power should negotiate with the social partners “a proposal” to increase the contribution rate. That is, more revenue to the system. Again, this measure is proposed to have a limit of 0.4% of GDP.

On November 15 it has to be ready

“It has been brought to the Bureau of Social Dialogue of pensions this afternoon an initial approach to the Intergenerational Equity Mechanism which proposes, as has always been indicated from the Ministry, a contingent tool, temporary and balanced,” simply state from the Social Security. “There have been many constructive contributions and negotiations are underway,” they point out.

The social partners have been summoned again next Monday to continue negotiating. Until Tuesday there were no details of the MEI announced, beyond the statements of Minister Escriva on a “small adjustment” in the pensions of baby boomers, which was retracted later.

This Tuesday, Social Security has finally unveiled the proposal on this equity mechanism, whose main focus is to affect income, not a cut in spending. The Government pledged to incorporate before November 15 to the first block of pension reform, which repeals the sustainability factor of the PP and is being processed in Congress. The social partners thus have just two weeks to try to reach a consensus on this instrument or the Executive will incorporate it alone.

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