HomeEconomySpain: agreement on the reform of the pension calculation method

Spain: agreement on the reform of the pension calculation method

The mechanism used in Spain provides for retirement pensions calculated either on the basis of the last 25 years of contribution or on the last 29 years, excluding the two worst years.

Spain’s left-wing government announced an agreement on Friday over how pensions are calculated, as demanded by Brussels in exchange for funds from the European recovery plan, putting more of the top earners to work.

Called on to act to rebalance its pension system, threatened by the aging of the population, Madrid announced in November 2021 a broad agreement that provides for an increase in contributions without postponing the legal retirement age, which must rise to 67 years in 2027.

But the government of the president of the Socialist Government, Pedro Sánchez, had not yet reached an agreement on the computable work period for pensions, a source of tension between the Socialists and the radical leftist party Podemos, partners in the ruling coalition.

The mechanism finally adopted, after several weeks of debate, provides that the amount of retirement pensions be calculated, as desired, on the basis of the last 25 years of contribution (as is the case today) or of the last 29 years -excluding the two worst years.

“Strengthen the redistributive character”

The Government plan also provides for raising the maximum contribution base, that is, the part of the salary on which workers contribute, which would go from 4,139 to 4,495 euros per month. A way to increase the income of the pension system.

This reform, the result of lengthy negotiations with Brussels, “will ensure the pensions of our elderly” and will guarantee “the viability of our public system for the next few decades”, Pedro Sánchez welcomed during a speech.

A message transmitted by the communist Minister of Labor, Yolanda Díaz, for whom the new mechanism “will reinforce the redistributive nature” of the Spanish pension system, by increasing the contribution “from the highest salaries”.

This new calculation method, designed to ensure the viability of the pension system, was one of the main counterparts demanded by Brussels in exchange for the granting of the “Next Generation” funds of the European mega recovery plan, of which Spain is one of the main beneficiaries with 140,000 million euros. Now it must be presented to employers as well as unions.

The problem of pensions in Spain is especially exacerbated by demography. The country thus combines the second lowest birth rate in Europe (1.23 children per woman) with a high longevity, above 83 years on average.

Author: PS with AFP
Source: BFM TV

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