The Government, the unions and the employers finalize this Monday an agreement for the first phase of pension reform. Among the priority axes of this pact are the recovery of the revaluations with the CPI and the incentives and disincentives to extend the working life. But perhaps the main measure of all is the transfer of the Social Security deficit to the State accounts. With the idea that improper expenses of the system are being covered, 22,567 million euros will be transferred annually that will have to be borne by the Treasury and not by contributions from workers and companies. By the end of this year, 13,929 million will have been injected, which were contemplated in the Budgets and, year after year, the figure will be raised to the established amount.
And this is recognized in the Recovery Plan that the Government sent to Brussels: “It is true that the financial needs of the State as a whole would not disappear, but they would be transferred to a sphere – the State – in which there are specific mechanisms that would allow them to be met without putting all the effort into an increase in labor costs, which is counterproductive given the high unemployment rate that the labor market is dragging on ”.
The Executive explains that a heavy burden of expenses that does not correspond to Social Security is being removed and that thus the financial situation of the system is being clarified, avoiding generating concern among pensioners.
The draft agreement with the social agents indicates the items that will be financed with the injection of the State. Some seem justified, insofar as they are policies decided by the Government and, however, their cost is borne by Social Security. This is the case of aid for early retirement, the reduction of contributions to promote employment, the favorable treatment of schemes such as the agrarian system or the maternity supplement. These concepts reach about 9,000 million.
But there are others that may be more debatable. A report by the Fedea research service affirms that the rest of the items can hardly be classified as improper expenses, such as the 9.580 million that are used to finance the unemployment benefit and that will go on to pay for pensions. That is, the Treasury will be the one who will bear these expenses with taxes.
The maternity or paternity benefit also moves to financing with taxes, something that is clearly a contributory payment of Social Security, it is charged precisely according to what is quoted and, according to Fedea, it cannot be classified as an improper expense. And they are 2,785 million.
Given these statements, the Ministry of Social Security alleges that sufficient contributions have not been established to finance these chapters. He argues that the distribution is poorly calculated and that more should be allocated to the pension system because the public employment service has had a surplus in good years.
In Fedea’s opinion, it is true that pensioners are a group that has little room for maneuver and that care must be taken with actions that may affect their income, especially those with lower income. Even so, he defends that “it does not seem reasonable to exempt all ex ante and completely of the distribution of sacrifices that may be necessary ”. And he concludes: “If there really are indications of a possible sustainability problem when the accounts are done well, it is good that it manifests itself where it really is generated.” Spanish pensioners are those who receive a higher proportion of the last salary in the EU. And the reform proposed by Minister José Luis Escrivá would leave that proportion the same, as the ministry admits.
Currently, those over 64 years of age present a lower risk of relative poverty: only 14.5% are below 60% of the median income. On the other hand, in those between 18 and 64 years of age, the percentage in relative poverty reaches 20.6%. If, in addition, the home ownership is computed as a rent that does not have to be paid, this percentage drops to 8.2% in those over 64, well below the 19.3% registered in the group between 18 and 64 years.
The contributory deficit before the pandemic was about 15,000 million euros. And by 2022 it is estimated that it will be around 22,000 million. Or what is the same, it is expected to transfer to the State all the deficit that is going to be generated. “With this transfer we will stop talking about the pension deficit to talk about the exorbitant deficit of the State. The solution does not solve the problem, it only changes it in accounting terms and, therefore, transfers the adjustment to the tax system ”, explains Enrique Devesa, professor at the University of Valencia and member of the IValencian Institute of Economic Research (Ivie).
The governor of the Bank of Spain, Pablo Hernández de Cos, spoke in this same line in Congress before the Toledo Pact Commission. Both the Bank of Spain and the Tax Authority place the structural deficit of the Administrations at about 4.5 points of GDP, about 54,000 million today. And to this will be added up to 4 more points of GDP for the retirement of the baby boom between the end of 2020 and 2050, according to calculations by the Tax Authority. Part of the lag could improve somewhat over time if productivity, employment, or tax bases increase. But the difference in collection with the EU average is almost six points and implies that a very important fiscal effort will have to be made.
On the other hand, when revaluations with the CPI return, the current reform undoes the adjustment made in 2013 by updating pensions to 0.25% while the system was not in equilibrium. This meant a saving of about 2.5 points of GDP, about 30,000 million today. Instead, the government offers measures to delay the effective retirement age and bring it closer to the legal one. And it predicts that it will save around 1.2 points of GDP. But a report from the universities of Valencia and Extremadura estimates that the savings for this reason are small. In fact, according to a study by the Bank of Spain, those who retire early actually represent savings for the system because the reduction coefficients applied to the pension subtract a significant amount throughout retirement.
The Ministry says that the reforms of the PP government were not socially sustainable and that consensus is needed to take measures. It also proposes for the second phase of the reform a rise in the maximum contribution bases and a factor of intergenerational equity that avoids overburdening young people. But it does not specify much more about how much could be corrected with these initiatives. And the European Commission is aware of this. Although their assessment of the recovery plan is positive, the documentation indicates that the measures may not fully offset the increase in spending caused by revaluation with the CPI and the aging of the population. “In the event that the compensatory and complementary measures are not sufficient to comply with the Commission’s recommendations regarding fiscal sustainability, the fiscal impact of the increase in pension spending would have to be further mitigated with proportional fiscal adjustments in the future. ”, He highlights. That is to say, it allows a partial reform to be made, and that later on, the gap that may occur is addressed with taxes.