Wednesday, January 19

The stoppage or the plan that will not guarantee pensions and complicate wages

The stoppage of contributions will focus the debate on pensions next year, since it is one of the legs of the pension reform that Spain has committed to with Brussels. But before getting into the subject, you have to understand what the clumping means.

The contribution base It is the reference by which it is determined how much employers and workers must pay to Social Security. This base has limits: the maximum and the minimum contribution base.

Depending on it, professionals will receive more or less benefits from the Social Security system. At a high contribution base, a higher pension and vice versa.

In this sense, experts consider that a double stoppage in both benefits and contribution base would improve the contributory equity of the system and would be more reasonable from a global point of view, but would not improve its sustainability.

Gaps between maximum pension and maximum contribution base

As Gregorio Gil de Rozas, director of the Retirement area of ​​Willis Towers Watson in Spain, explains, “as normally happens with the Toledo Pact recommendations, they do not set a quantitative criterion on this point. They limit themselves to affirming that it is done in a clear and stable way “

The expert recalls that the variables of maximum pension and maximum contribution base do not seem to have followed a predictable or reasonable criterion and it is observed that the gap between the two has followed an upward trend, going from 1.10 in 2010 to 1.30 in 2020 and dropping slightly to 1.29 in 2021.

In the interval from 2010 to 2021, a maximum contribution base has been observed about 11,000 euros higher than the maximum pension, “which affects the principle of contributory proportionality,” insists Gil de Rozas.

Effect of the stoppage of the maximum contribution base

Caution must prevail since unstuck can lead to an increase in labor costs and a decrease in the net salary of members.

The proposal sent to Brussels by Moncloa includes the destope, but without taking into account the problems it may have in the labor market.

What would be the main effect? Unclogging the contribution bases has an immediate effect that translates into higher contributions.

According to data from the Salary Structure Survey (EES) of the INE and Social Security, in 2019 it would have resulted in an increase in collection of about 5,600 million euros, which represents 3.90 percent of contributions of that year.

With respect to 2018, it represented a decrease in collection of 11.61 percent, because the increase in the maximum contribution base, of 7.87 percent, was well above that experienced by the average salary, of 1, 61 percent.

In this regard, Fernando Martínez-Cue, pension expert and associate at LoRIS (Longevity & Retirement Income Solutions), explains that harms workers in the sense “that in the short term it is increasing the labor costs it entails for the employer, which makes hiring difficult. In the long term, it will impact wages, with a drop in gross and net wages.”

Martínez-Cue also recognizes that it is a measure whose impact will be significant, but not decisive to improve the sustainability of the system since the percentage of workers with maximum contributions is a minority in Spain.

“The average salary in Spain is around 23,000 euros”, recalls the expert.

“However, it seems logical that, sooner or later, with a more or less extensive transitional period, it is inevitable that there will be a peak in the maximum pension or, at least, a significant rise in it,” explains Enrique Devesa, consultant for the Willis Towers Watson Pension Observatory.

The option would be a double butt

The experts propose as an alternative a double stopper, which would improve the tax equity of the system and would be more reasonable from a global point of view, but would not improve its sustainability.

However, if the objective is to increase the income of the system, the best way would be to uncover only the maximum contribution base, despite the fact that this would harm workers with high contribution bases and also those who access voluntary early retirement with regulatory bases above the maximum pension.

For his part, Martínez-Cue adds two other options to improve the sustainability of the system.

“Do not link them to the CPI”, although he clarifies that it has a social component since pensioners do not have the margin of action to protect themselves from inflation, but also “link life expectancy to retirement age.”