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HomeLatest NewsThe new rate to finance pensions will charge 2,200 million annually

The new rate to finance pensions will charge 2,200 million annually

Date: June 7, 2023 Time: 03:55:23

The aging of the population is opening one of the periods of greatest financial stress for the system. In a context in which youth unemployment exceeds 30% in Spain and new pensions are already 20% higher than those that end, the Social Security Reserve Fund is at the limit of the deficit. That is why, starting in 2023, and for at least ten more years, the Intergenerational Equity Mechanism (MEI) will come into play, also called “finalist additional contribution”. A new contribution that, in practical terms, consists of a new rate on income generated at work, which will be charged to the payroll of all workers, regardless of salary level, and which will amount to 0.6% of salary.

The MEI is made up of a set of measures designed with the aim of preventing a future cut in pensions and that the burden of paying the system falls solely on the youngest. This new contribution would seek to compensate for the elimination of the Sustainability Factor approved in the 2013 pension reform -they have been linked to inflation again- to guarantee their financing. This instrument intervened in the calculation of the initial retirement pension in order to adjust what is going to be charged to life expectancy. In such a way that the lengthening of life expectancy caused a decrease in the amount that was set at the time of retirement.

Thus, if it is compared to a recently retired pensioner who earns today. If we raise this calculation to one who retires in 2070, the loss would triple to 194 euros per month. And, if this comparison is made with the amount of the maximum pension, the figure would skyrocket to 485 euros. With the new mechanism agreed at the dialogue table headed by José Luis Escrivá, the intention is precisely that the now young people do not see their pensions affected when they reach their normal retirement age; but current retirees are not harmed either, since this tax only applies to workers.

How much money is expected to be raised for the Reserve Fund?

The main concern of the Government at the moment is how to guarantee the viability of retirements for the baby boom generation. In this sense, the Executive seeks to fatten the pension piggy bank by fixing the payment of this new contribution for a decade, between 2023 and 2032. The MEI, key, adds to other measures such as discouraging early retirement, linking pensions to the CPI or the change in the calculation of the contribution base, which will affect early retirement.

With it, Social Security plans to raise 22,000 million euros, 2,200 million each year. A figure that has been questioned by different international organizations and institutions such as the European Commission and the OECD, who estimate that spending could reach 50,000 million euros between 2040 and 2050, when there are some 15 million pensioners. Taking into account that the Government has promised not to apply cuts to benefits, it is considering extending the collection of this new tax for a period of 30 years, until 2050. If this path is established, the level collected would be multiplied by three, reaching nearly 70,000 million.

Spending could reach 50,000 million between 2040 and 2050, a period in which there will be some 15 million pensioners

However, that decision is still up in the air. In accordance with the provisions of the pact with the pacts, if from 2033 a deviation of the pension expenditure forecast for 2050 will be appreciated in the reports of the European Commission with respect to the 2024 report (which will be used as a reference), This money was answered that it has been deposited in the Fund with an annual limit of 0.2% of the Gross Domestic Product (GDP) to make payments.

How much money does it mean in the payroll?

The finalist additional contribution will be 0.6% and will be divided between the company (0.5%) and the worker (0.1%). The proceeds and the returns generated from it will accumulate in the pension piggy bank and will be used exclusively to address possible deviations in the level of spending. For employees who earn the minimum interprofessional wage, the tax will mean a reduction of 6 euros per month. Of these, 5 euros will be paid by the company and 1 euro by the worker. In this sense, the tax will raise the cost per hour worked that companies pay for each worker from 20.9 euros to 21 euros, while the European average is around 26 euros and other countries such as Germany (35.6 ), France (36.5), the Netherlands (36.5) or Belgium (40.5) far exceed them.

The Social Security RED News Bulletin indicates that the MEI will not apply to those groups of workers excluded from contributing due to the retirement contingency. Specifically, it refers to workers forced to contribute exclusively due to temporary disability derived from common contingencies, professional contingencies and solidarity contributions (for example, active retirees). In addition to groups forced to contribute exclusively due to professional contingencies, new students

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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