In the last pension reform, the Government created the so-called ‘solidarity quota’ to extract more income from the highest salaries and get them to pay social contributions to Social Security for their entire payroll. As? This extraordinary contribution incorporates an additional rate that comes into effect on January 1, 2025. It will start from 0.92% and will reach 1.17%, rates that will be applied to the salary range that exceeds the maximum base of price. The Government estimates that this limit will be close to 59,000 euros in 2025 once updated, so more than one million payrolls that currently exceed that threshold will pay more installments.
The maximum contribution base is currently 56,600 euros per year or 4,720.50 euros per month. Until now, this limit limited the part of the salary that pays Social Security contributions and it has its reason: the public pension is also limited. This changes following the regulation approved last March, which will also tax the salary range that was previously exempt and will not result in an improvement in the public pension.
The latest pension reform directs efforts towards higher incomes – with the solidarity quota or the ‘destope’ – with practically no spending cuts. It seeks to correct a historical gap with Europe: Spain has a lower maximum contribution base (also salaries) than other counterpart countries, therefore, There are workers who do not pay contributions for their entire salary, because the maximum pension is also lower.
Unlike the Intergenerational Equity Mechanism (MEI), which applies to all salaries, the solidarity quota reaches high incomes. The solidarity fee is an additional contribution that is not contributory, but rather “redistributive.”
What does this mean? It serves to generate an extra income item that will be used to pay future pensions, but does not generate an improvement in the regulatory base that calculates the contributor’s future pension and could be considered a tax. The next course will cost around 350 million with this fee.
Ultimately, the new solidarity quota will be used to soften the financial blow of the mass retirement of the baby boom generationbut it has no effects on the pensions of the workers who will be affected by the regulations in Spain. The Tax Agency estimates that there are almost 1.2 million payrolls that exceed 60,000 euros, according to data from the income tax return for salary perceptions.
How it is applied since January
The new solidarity quota will be applied to the salary range that exceeds the maximum base planned between now and the middle of the century. This limit is established based on the variation in annual inflation plus an additional 1.2 points after the last reform. According to the Bank of Spain’s forecasts, the CPI will rise by 2.9% on average in 2024.
Therefore, the increase that would be applied to the current maximum base is 4,720.50 euros per month or 56,646 per year. would be 4.1% and It would be about 4,747 euros per month or 58,968 per year. From this section onwards, the surcharge will be applied with the corresponding fee according to the section:
- An additional 0.92% contribution for the part of the salary between the maximum base and 10% higher than that maximum base. In 2025, this first tranche will reach just under 65,000 euros.
- 1% for the salary range from the additional 10% of the maximum base to 50%. In 2025, this second tranche will be between almost 65,000 euros and 88,000 euros.
- 1.17% for the remuneration bracket above the additional 50% of the maximum base. In 2025, salaries starting at 88,000 euros will be in this section.
The distribution of the contribution rate that starts next year will maintain the same proportion as the usual rates for common contingencies, those that finance pensions: For every point the worker pays, the company pays five. “For example, in the year 2045, in the case of the second tranche (6% extra contribution), 5% will be paid by the company and 1% by the worker,” explains BBVA My Retirement.
The General Treasury of Social Security (TGSS) will be in charge of calculating the corresponding contributions, applying the contribution rate to both the company and the worker, to dispel doubts. It will be reflected in the Contribution Settlement Receipt, although not in the Nominal List of Workers.
This solidarity fee will be directed to those workers whose income exceeds the maximum contribution base, specifically: employees located in the General Regime, in the Special Regime for the Sea and self-employed workers also located in the Regime for the Sea. The rest of the self-employed are left out. of overpricing.
The impact on each payroll, with examples
More than a million workers will notice the impact on their payroll at the end of the month. What the solidarity fee will subtract from the payroll ranges from just a few euros to several hundred.
Those who are in the lowest bracket and will pay 0.92% of their gross salary – until now exempt from fees – will pay 9.5 euros if the salary is 60,000 euros per year or 55.5 euros if the example is calculated with a payroll of 65,000 euros.
Those who earn in the intermediate bracket will have their salary taxed with 1% for the pension fund and will pay an additional fee of 160 euros or 260 euros, taking salaries of 65,000 or 75,000 euros per year as an example.
The highest salary percentile in Spain will pay 1.17% for their gross payroll. A salary of 100,000 euros will pay that percentage for a salary range of more than 40,000 euros, a total of 480 extra euros. A payroll of 125,000 euros will do so for a salary range of 66,000 euros that was previously exempt from contributions and will now pay 772 euros annually.
There is another climb pending
The beginning of 2025 will also bring an increase in the surcharge paid by all employees to fill the pension ‘piggy bank’ and sustain the system. The last pension reform created the Intergenerational Equity Mechanism (MEI), an extra fee that now rises to 0.8% of the salary from January 1 and will reach at least 1.2% by the end of the decade . The rate will remain at 29.1% of the salary.
This fee will be applied to all payrolls and is intended to nourish the pension piggy bank with a collection forecast of 130,000 million euros by mid-century to face the high expected expense that the massive retirement of the ‘baby boom’ will entail.
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