Monday, September 20

The “intergenerational equity mechanism” and other debates on pensions that open in September

The first block of the pension reform is heading to Congress, but the negotiation has not finished. Now the parliamentary processing of this package of measures will begin, so it could still undergo some modifications. This September also begins the negotiation of an important fringe yet to be defined: the substitute for the 2013 sustainability factor, which will be a “mechanism of intergenerational equity”. The negotiation of this element is expected to be complex, with quite distant starting points between Minister José Luis Escrivá and the social agents. And, finally, several government commitments are pending for the coming months and the entire second phase of the reform remains to be addressed.

Escrivá says that it is necessary to avoid that the spending on pensions of the ‘baby boomers’ falls on young people

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The most immediate task for the Ministry of Social Security is to specify the aforementioned “intergenerational equity mechanism”, which the Government wants to be included in the bill for the first pension package. The plans are: negotiate it with the social agents, have it ready before November 15, and introduce it into the legal text via amendment.

Why the rush? Because, as a result of pressure from the unions, the first package of measures finally included the repeal of the pension sustainability factor approved by the PP government in 2013 and which entailed a substantial reduction in the benefits of future pensioners. Above all, for the youngest. The Executive finally agreed to repeal this element now, and not in the second phase of the reform as it intended, but only if the measure that will replace it and that has been promised to Brussels within the Recovery and Resilience Plan was also incorporated: the ” intergenerational equity mechanism “.

Although informal contacts have already been made, the meeting that will officially resume social dialogue on pensions is scheduled for mid-September. The priority is to define the equity mechanism, which is still very much up in the air. What is clear is its objective: to reinforce the sustainability of the pension system in the face of the increase in spending that will occur over several years for the retirement of the generation of the baby boom. In this time, the number of pensioners will increase a lot while the workers who pay their benefits will be reduced, since they belong to generations with fewer births.

Already in 2011, both the Toledo Pact and the social agents agreed that a “sustainability factor” was necessary to face this temporary challenge in financing the system, but the PP approved one in 2013 without social or political dialogue, which even did not came to implant. The idea now is to resume the consensus of a decade ago and agree on a measure that enjoys the support of the rest of the political groups and of the unions and employers.

Remote starting points

The challenge is complex. Initially, Minister Escrivá and the social agents do not share the same approach. The person in charge of the Social Security considers that the mechanism should be reflected in a “moderate adjustment” on the generation of the baby boomers, those born between the mid-50s and the 70s. The minister has insisted on avoiding that the “effort” falls on the young but on the larger generation.

Escrivá announced in the Toledo Pact that the new mechanism will seek the same reduction in pension spending as the 2013 sustainability factor since other measures have been agreed, such as incentives to delay the effective retirement age, which the Executive expects that have an important effect for the next few years.

José Luis Escrivá went so far as to affirm that this adjustment could translate into a reduction in the pension or that these people had to retire a little later, although he later retracted his words and assured that they were only “reflections.” The CCOO and UGT unions, but also the employers’ associations, came out to reject this approach with separate statements. “The definition of the new sustainability factor, replacing the current one, which has been subject to future negotiation, must be based on equity and intergenerational solidarity, avoiding, in any case, that the sustainability of the system falls only on some generations”, CEOE and Cepyme responded.

“The first thing the Government has to do is say what it intends with the mechanism, what budgetary impact it wants to have. The minister has said that it is small, but they have to specify it. If it is one, two or three tenths of GDP, it is relatively easy to reach. If it is a point of GDP, we would be talking about a lot of money “, says Carlos Bravo, secretary of Public Policies and Social Protection of CCOO. “The second thing you have to tell us is how you intend to achieve it. The unions think that there are margins of actions in the income, without adjusting the benefits, because we have already deployed other measures in the first agreement to guarantee the sustainability of the system,” he adds.

After the controversy caused by his words, Escrivá appeared at the Toledo Pact at the beginning of July and summarized the existing debate. “The dilemma is: is this paid for with taxes, which everyone pays? Or could the possibility of more selective mechanisms be considered?” The minister is in favor of the second option and, from his words, it seems that with a focus more focused on the containment of spending.

The unions, on the other hand, opt for the first path, rejecting a discourse that “confronts” some generations of citizens with others. The ‘baby boomers’ have been very numerous cohorts and they were also so as workers and contributors to the public system, they recall. “We believe that income can be strengthened, we think about the rates of contribution, the maximum base stoppage … Some may be structural measures and others more temporary, of 20 or 25 years, we must debate it”, affirms Carlos Bravo, who It differs in the “generational” approach of the measure and considers that the “efforts” must be focused on those who have the most. “In all generations there are people who are doing badly and others who are doing very well,” he says.

Widowhood of domestic partners, scholarship holders and other debates

Along with the equity mechanism there are several commitments that started from the first social agreement on pensions and that the unions want to start discussing as soon as possible. This is the case, for example, of the equalization of the widowhood pension of common-law couples and marriages, as well as approving the regulations so that all scholarship holders contribute to Social Security. “It is also pending that the self-employed are listed by their real income, which we believe must be addressed now,” defends Carlos Bravo.

This element is part of the second phase of the pension reform, which is planned in several stages until the end of 2022, according to the timetable promised to the EU. In CCOO they defend the negotiation of the measures simultaneously, not separately, which they consider makes difficult a more transversal approach to the system and the connection between the measures.

On the other hand, the Toledo Pact will also analyze from September the Social Security report on long retirement careers, which chooses not to decriminalize early retirement after 40 years of contributions, as it is a “comparative offense” among pensioners. The Ministry also recalls that workers with long careers already have penalties lower than the rest for early retirement.

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