The Spanish government and unions agreed on Monday to increase the amount of social security contributions in order to help pay for future pensions.
During the last two decades of Francisco Franco’s dictatorship which ended in 1975, Spain experienced a baby boom. With those born during that time soon due to retire, the government is taking action now to make sure funds are available to see them through their retirement years.
Sources from the Ministry of Social security said that the increase in payments would help to fill the depleted coffers of the pension reserve fund ready for 2033 when those born between 1957 and 1977 will start to retire.
Negotiations between the government and workers unions have been ongoing for several weeks, however, up until Monday, the two sides were unable to come to an agreement.
On Monday the CEOE and Cepyme business associations, which represent both large and small Spanish companies, abandoned the negotiating table, arguing that the plan placed too much of a burden on employers, which could lead to a decline in job creation.
What was agreed between the government and unions?
Following negotiations, both sides agreed that from 2023, social security contributions will rise by 0.6%. In practice, this will mean that the employer will pay 0.5% with the employee picking up the remaining 0.1%.
At the moment companies contribute 23.6% of the contribution base with workers paying 4.7%. Although it is yet to be confirmed, the changes could see these numbers increase to 24.1% and 4.8%.
How will workers' salaries be affected in monetary terms?
A worker with a minimum contribution base of 1,050 euros, will need to contribute an extra 1.05 euros per month or 12.60 euros a year.
Those on the average base of 2,000 euros will need to pay an extra 2 euros per month or 24 euros per year.
Finally, workers on the highest contribution base of 4,070 euros, will have to pay an extra 4.07 euros per month or 48.84 euros per year.
When will the changes come into effect?
The new changes will start from 2023 and are expected to last for 10 years until 2032.
Over the 10 year period, the government expects to refill the pension pot to around 50 billion euros. In 2011, it reached 67 billion, but due to the economic crises, funds were depleted. The pot currently holds around 2 billion euros which is insufficient to fund future retirees hence the need to increase it.
The announcement follows recent news that the retirement age will be pushed back to 66 years and 2 months from January 22. Workers will therefore need to work for at least 37 years and six months in order to receive a full state pension.
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