“Lack of sophistication.” This is how the Minister of Social Security, José Luis Escrivá, described the Bank of Spain’s analysis of the public pension system in your 2021 annual report. The banking regulator considers that adjustments are necessary in additional pensions to the reform already approved in 2021 and to the second block of changes announced for this year. The Bank of Spain recommends “automatic mechanisms” for adjustment, which Escrivá has called an “overwhelming failure”.
Escrivá and the self-employed try to agree on the quotas according to income until 2025 to get the negotiation off the ground
“The automatic rules do not work anywhere,” José Luis Escrivá responded this Thursday with obvious anger. The person in charge of Social Security has affirmed that he has been “surprised” that the Bank of Spain recommends incorporating this type of adjustment mechanisms “given the overwhelming failure of the automatic rules in the fiscal field and especially in the monetary field, of which they have experience ”.
The Bank of Spain points out in its annual report the need for more adjustments in the pension system to guarantee its long-term sustainability in the face of the aging of the population in the coming decades. The regulator recalls that the repeal of the 2013 PP reform (of the 0.25% increases and the sustainability factor) will mean an increase in spending, which it considers will not be offset by the increase in revenue resulting from the reform of Minister Escrivá to encourage the delay of the effective retirement age and the rest of the measures announced for the second block of changes that will be approved this year.
“According to the available estimates, which incorporate the recently adopted measures, coping with the increases in pension spending that will result from population aging will require new actions in the future on the income side, on the spending side, or both. ”, values the Bank of Spain.
Opposition to “automatic rules” of adjustment
Among them, the regulator briefly slips that “it could be convenient to assess the introduction of automatic adjustment mechanisms that adapt some parameters of the system to the changes that occur in demographic and economic dynamics.”
The Bank of Spain does not detail what type of “automatic mechanisms” could be applied, but in the recent past there are two examples: the sustainability factor and the 2013 pension revaluation index, designed to contain spending by reducing future pensions. In the first case, limiting future pensions based on the evolution of life expectancy and, in the second, preventing the growth of pensions above 0.25% due to a series of system financing parameters.
The CEOE employers’ association has also revived the idea that a new pension sustainability factor is necessary, despite having agreed less than a year ago on the first block of the pension reform. Businessmen, however, did not give their support to the intergenerational equity mechanism.
José Luis Escrivá has rejected the “automatic rules”, which he has insisted that “it is clearly demonstrated that per se they tend to fail” and has underlined that the reform already approved by his team is “extraordinarily sophisticated”. The minister has specifically referred to the intergenerational equity mechanism (MEI), which he has described as “semi-automatic”, which implies an increase in the contribution to increase Social Security income in the next decade and which he leaves for 20332 onwards the evaluation and design of new adjustment measures, if necessary.
The Ministry of Social Security is pending the approval of the second block of the pension reform this year, committed to Brussels, with measures such as the reform of the contribution of self-employed workers based on their income. After many months of complex negotiation with social agents and self-employed groups, it seems that finally only the first steps of the reform will be finalized, until 2025, and the complete transformation of the system will be left for later.
In addition, other important elements of the reform are yet to be negotiated, such as a review of the maximum contribution bases, for which higher wages contribute more to the system, and the review of the calculation of working life to collect the pension.
All eyes point to this second element after the controversy with United We Can for its rejection of the extension of the calculation period to 35 years, which came to appear in internal drafts of the Government. Finally, the documents sent to Brussels in the Recovery Plan account for the increase in this period, but Minister Escrivá has insisted that it refers specifically to those more discontinuous working lives and to the people who benefit from this extension.