The Government of Spain signs the first major pact on pensions in the framework of social dialogue with the social partners since 2011

"This agreement removes uncertainty about pensions. And it does so by ensuring the sufficiency of pensions, reinforcing the sustainability of the system in the medium and long term and introducing elements of equity," said the Minister for Inclusion, Social Security and Migration, José Luis Escrivá, at the signing ceremony held at Moncloa Palace.

The agreement complies with Recommendation 2 of the Toledo Pact, guaranteeing the maintenance of the purchasing power of pensions and definitively correcting the formula introduced in 2013, the application of which has been suspended since 2018. It thus establishes a stable revaluation mechanism, and on 1 January each year pensions will be increased in accordance with the average annual inflation recorded in November of the previous year. In the event of a year with negative CPI, pensions will remain unchanged.

In addition, the agreement includes a regular assessment of this new pension revaluation mechanism, to be carried out in the framework of the social dialogue every five years.

Secondly, following Recommendation 12, various provisions are incorporated aimed at voluntarily bringing the effective age closer to the ordinary retirement age. This includes four measures: the review of voluntary, involuntary and activity-based early retirement, delayed retirement, active retirement and forced retirement.

One of the new features is that the reduction coefficients related to bringing forward the retirement age will be applied to pensions and not to the regulatory base of pensions, as has been the case until now.

In particular, with regards to voluntary early retirement, the coefficients will become monthly in order to give more flexibility to future pensioners and to encourage the voluntary shift of the retirement age. In addition, longer contribution careers will be treated more favourably. In most cases, moreover, the coefficients will be lower than those currently in force in order to encourage small delays in exiting the labour market.

The pact also eliminates the regressive aspects of the system. In cases of notional pensions above the maximum, this will be phased in over a period of 10 years from 1 January 2024.

With regards to involuntary early retirement, two aspects are improved: on the one hand, monthly coefficients are established instead of quarterly ones; and, on the other hand, in relation to the two years immediately prior to the ordinary retirement age, the same coefficients are applied to determine the involuntary early retirement pension as in the voluntary mode for those cases in which the new coefficient is more favourable than the one in force until now, among others.

With regards to early retirement on grounds of activity, the application procedure will be modified and the indicators of dangerousness or arduousness that determine access to this type of early retirement will be specified in greater detail so that it can be applied effectively.

New incentives for delayed retirement

In the case of delayed retirement, exemption from contributions for common contingencies, except for temporary disability, shall be established as of the corresponding ordinary retirement age. But most notably, the incentives will be significantly strengthened, with three types of incentives for each year of delay:

• An additional percentage of 4%.
• A lump sum depending on the size of the pension and rewarding the longest contribution careers.
• A combination of both options

With regards to active retirement, in order to access this modality, pensioners will need for at least one year to have passed since reaching the ordinary retirement age, and this modality will be reviewed within the framework of social dialogue within a maximum period of twelve months.

On forced retirement, it has been agreed to prohibit contractual clauses providing for the forced retirement of workers before the age of 68. This limit may be lowered in some sectors (CNAE) upon the condition that there is increased participation of women in these sectors. Clauses that have been included in the agreements in accordance with the regulations in force may be applied for as long as they remain in force.

Finally, as part of this line of action, which aims to encourage older workers to remain in the labour market, a 75% reduction in employer social security contributions for common contingencies is established during temporary incapacity for workers who have reached the age of 62.

Another very noteworthy aspect is the strengthening of the revenue structure of the system. Following Recommendation 1, the completion of non-contributory social security expenditure has been included in the document.

In line with Recommendation 5 of the Toledo Pact, the document provides for the gradual introduction of a system of contributions based on real income for the self-employed as of 1 January 2022. The new system will be adopted in 2022, with no economic effects until 2023, with a phased roll-out over a maximum of nine years. Every three years, there will be a periodic review in which the social partners and the self-employed associations, together with the government, may decide to accelerate this timetable.

New intergenerational equity mechanism in November

In addition, in order to preserve intergenerational balance and equity, and in compliance with the Recovery, Transformation and Resilience Plan, the signatories commit to negotiate the replacement of the sustainability factor with a new intergenerational equity mechanism that will operate from 2027. The negotiation process will be opened immediately after the signing of this text in the framework of the social dialogue so that the regulation of the new mechanism can be incorporated into the draft law by 15 November 2021. If no agreement is reached in this negotiation process within the framework of social dialogue, the government will regulate the mechanism so that it can be defined when the law enters into force.

Finally, Recommendation 8 of the Toledo Pact is to be fulfilled through the creation of the State Social Security Agency, with a commitment to present a draft law within six months. Within the same period, and in compliance with Recommendation 13, a review of the regulatory framework for widow's and widower's pensions for unmarried couples will be addressed within the framework of social dialogue in order to bring their conditions of access into line with those of married couples.

Likewise, the safeguard clause will be maintained in its current regulation on an indefinite basis and, within a period of three months, the regulatory development will be carried out for the inclusion in the Social Security system of people who carry out internships, even if they are not remunerated. In these cases, a contribution reduction of 75% will be established.

Non official translation