Tuesday, November 30

The rise in contributions “does not guarantee” the sustainability of pensions

Criticism is raging against the Minister of Social Security, Jose Luis Escrivá, now motivated by the presentation to the social agents of the new intergenerational equity mechanism that your department has designed to deal with the problem of increasing pension spending.

With this mechanism, which will replace the sustainability factor and which many already define as a labor tax, Escrivá aims to ensure the viability of the public pension system increasing half a point Social Security contributions of workers and employers for ten years.

This rise in contributions would translate into 10 euros per month for salaries of 1,900 euros per month and 5 euros for salaries of mileuristas.

1,000 million for the piggy bank

The objective of this measure is to obtain an amount close to the 1,000 million euros per year, which would go to the Social Security reserve fund, known as the pension money box, whose purpose is to cover the deficits of the system.

Now it only saves 2,000 million euros, a figure very far from the 66,815 million that it had in 2011.

If these contributions are not necessary, the Government could return them lowering contributions or improving pensions.

Control deviations

The new mechanism also includes, as of 2032, a review to be carried out every three years to check whether pension spending over GDP deviates from the projection estimated for 2050 by the European Commission’s pension report, the Aging Report. If deviations occur, new measures will be applied to correct them.

The document presented to the social agents indicates that it is “a contingent, temporary and balanced tool” that the Government, employers and unions must specify before November 15.

In the event of not reaching an agreement, the Executive is empowered to define it unilaterally and integrate it into the pension reform that will come into effect next year.

An “ineffective” model

The mechanism designed by Escrivá’s department does not convince pension experts and they describe it as “ineffective.”

“This new measure does not go through spending but through income, increasing contributions without considering demographic variables. It will increase labor costs and, therefore, hiring, so it does a disservice to job creation ”, He assures Miguel Angel Menendez, director of the Wealth area of ​​Mercer Spain.

Nor will it meet its objective of ending the Social Security deficit and giving sustainability to the public pension system threatened by the massive arrival of the baby boomers into retirement.

“It is not effective in solving the pension deficit, but it is effective in generating excess income now that it will be used if the financial and actuarial assumptions are not met and we deviate from the requirements of the European Commission,” he says. Isabel Casares placeholder image, Secretary General of the Organization of Pension Consultants.

He considers that this “is not the time to generate a piggy bank but to look for a real and reliable system to get to solve the deficit of the Social Security ”.

Pensions greater than contributions

José Antonio Herce, founder of the consulting firm LoRIS and pension expert, argues that even if there were no pressure on pensions exerted by baby boomers, the Spanish system would continue to generate financial instability in its checking account due to the progressive increase in life expectancy and existence of a pension formula that returns more than 1.5 euros for each euro listed.

For this reason, he believes that increasing contributions by 0.5 percentage points over a decade “will not be enough to cover pension spending. They would not even provide enough to cover the cost of updating pensions based on the CPI”.

Miguel Angel Menendez is convinced that the new mechanism “in no case will it be able to solve the deficit of pensions and their solvency in the future. Clearly the mechanism is insufficient ”.

More radical is shown Enrique Devesa, professor at the University of Valencia and researcher at the IVIE, by indicating that the model proposed by Escrivá “is not going to guide us towards a zero deficit but towards a permanent deficit of the pension system”.

Increase in labor costs

What this mechanism is going to generate is “a increase in labor costs both for the company and for the worker ”, indicates Menéndez.

He believes that in Spain the cost of 24 percent that companies have to face for quotes it is high compared to other countries, so “it is not a good measure to raise it half a point more. This makes us less competitive and will generate less employment, which is what the country needs most now ”.

Worse than the sustainability factor

Experts consider that the intergenerational equity mechanism is worse than the sustainability factor introduced by the PP in its 2013 pension reform, which adjusts pensions to life expectancy and whose repeal has been agreed by the Government with the agents social.

This is how José Antonio Herce has recognized it: “The sustainability factor was much more effective than the new mechanism, more efficient and easier to implement and understand ”.

For Enrique Devesa this factor could have meant in 2050 savings in pension spending of 1.1 GDP points, while the new mechanism will generate, at most, a saving of 0.8 points. “Therefore, from the point of view of the financial sustainability of the system, the new mechanism is less efficient than the sustainability factor.”

Finish off the patches

Miguel Ángel Menéndez also defends the sustainability factor because all countries with “robust and solvent” pension systems apply models that link their benefits to life expectancy and are nonetheless generous.

He proposes that politicians should “think about structural changes targeting pensions and not in intermittent patches that do not lead to improving our system at all ”.


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