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15 January 2018

Spain: Trade Unions call for a sustainable pension scheme

Spanish trade unions took to the streets in October of 2017, calling for pension reforms to be reversed. They believe that the pension system needs to be more sustainable. Spain reformed its pension system with a package of legal initiatives in 2011 and 2013. The aim was to address pressure on pension spending from an aging population. The reforms should ensure the financial stability of the pension system, and annual nominal pension increases for all pensioners.

An OECD report, published in December 2017, says the country’s flexible retirement use, with a prolonged working life, is limited because of large disincentives to combine work and pensions. The OECD, also says, the system has too many working restrictions after being eligible to a full pension, whilst the IMF wants further reforms

The country’s public pension system is composed of an earnings-based scheme and a non-earnings related scheme. The mandatory earning-related scheme is a pay-as-you-go scheme. It provides contributory pensions, such as long-term disability, retirement, survivor, and orphan/relatives pensions. The public pension system also covers civil servants who entered the government prior to 2011. The non-earnings related scheme is funded through state transfers. State transfers also top up low earnings-related pensions to the minimum pension amount.

The 2011 and 2013 reforms aimed to ease the demographic pressure on contributory pension expenditure. One central goal was to induce an increase in the effective retirement age as life expectancy increases. The measures included the gradually increase of the statutory retirement age from 65 in 2012 to 67 in 2027, a longer calculation period for pensionable earnings from the last 15 years to 25 years, tightened access to partial early retirement and an increase of the number of years of contributions required to receive a full pension from 35 years in 2012 to 37 by 2027. Further restrictions to access early retirement were introduced after 2013.

One of the critical effects of the reforms is the limitation of the indexation. The IMF has recommended to fix this percentage at 0.25%, although the fund has projected that in the very near future, the real value of a retiree’s pensions is likely to fall during retirement with this percentage, leading to a consistent reduction in the purchasing power of pensions. Therefore, the fund asks the government and the social partners to accelerate the reform of the pension system if they want to maintain the purchasing power of the retired and a certain solidarity between generations. According to the unions, the freezing of the indexation at the level of 0.25% has to be changed, and, in fact, much of the 2013 reform needs to be reversed. CC.OO and UGT marched on the streets the spending a greater percentage of GDP on pensions. 

However, the perspectives for a more qualitative tripartite deal on the sustainability of pensions are unclear. The last substantial deal between the two main union confederations, UGT and CCOO, the employers` organisations and the government dates back from 2012. That agreement included clauses on the pension age, as well as measures to improve transition into the labour market for young people and long term unemployed. Since then, the social dialogue dried up. A hard blow was given to the talks by the austerity policy that attacked the basic pillars of education, health, pensions and unemployment benefits. In recent months, observers have stated that there are no excuses for action. There are enough problems to solve that fit in a social pact.   

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