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Spanish Government Approves The First Leg Of The Pension Reform

The Council of Ministers approved this Tuesday the draft law that guarantees the purchasing power of pensions by raising them with the CPI and with which it seeks to bring the effective retirement age closer to the legal age by reviewing the early retirement model and the introduction of greater incentives to delay withdrawal from the labor market.

The rule, which is based on the recommendations of the Toledo Pact and is the result of the agreement with CCOO, UGT, CEOE and Cepyme , is the first leg of the pension reform that the Government has committed to Brussels in component 30 of the Recovery Plan and Resilience.

The reform, which is expected to come into force in 2022 after its passage through the Cortes, will eliminate the most controversial aspects of the 2013 reform: the pension revaluation index (IRP), which limited its annual rise to 0, 25% in deficit situations, and the so-called sustainability factor, which will be replaced by a new intergenerational equity mechanism.

The great pension agreement signed with the social agents includes a wide range of measures to bring the effective retirement age closer to the ordinary age, as requested by the Toledo Pact. These measures are essential to strengthen our system

Although the replacement of the latter is part of the second leg of the pension reform, planned for later, the Government and social agents have given themselves until November 15 to negotiate the new mechanism , which will operate from 2027 and to be included in the bill through an amendment.

This reform guarantees the maintenance of the purchasing power of pensions by setting a stable revaluation mechanism, whereby on January 1 of each year pensions will be increased in accordance with the average annual inflation registered in November of the previous year. . Also, if the data is negative, there will be no changes in pensions.

The text also establishes a periodic evaluation every five years in the framework of the social dialogue of this new revaluation mechanism.

Early retirements: reductions
As a novelty, it is established that in the case of voluntary early retirement, the pension reducing coefficients will become monthly, not quarterly, and there will only be transitory periods of application of the same in the case of maximum pensions.

In most cases, these coefficients will be lower than those currently in force in exchange for delaying the retirement advance for two months . For those who have contributions for less than 38 years and 6 months, advancing their retirement by 24 months will mean a reduction in their pension of between 21% and 3.26% (1 month before); For those who have more than 38 years of contributions and 6 months, but less than 41 years and 6 months, the maximum reduction will be 19% (24 months) and the minimum of 3.11% (1 month).

For its part, the reducing coefficient will become 17% if those with contributions over 41 years and 6 months, but less than 44 years and 6 months, retire two years earlier. If they do it a year before, the reduction will be 2.96%. Finally, those who are more than 44 and a half years old will have a reduction of 13% for retiring two years earlier and 2.81% one month earlier.

As an exception, if at the time of taking advantage of voluntary early retirement the worker was receiving unemployment benefit for at least three months , the reducing coefficients that will be applied will be those established for involuntary early retirement.

The new reduction coefficients included in this reform will be applied to the amount of the pension, and always respecting the maximum limitation. When the pension exceeds the limit established for the amount of pensions, the reducing coefficients will be applied gradually, over a period of ten years, starting from January 1, 2024.

The text also modifies the procedure for requesting early retirement due to the activity and modifies the regulation of early retirement not attributable to the worker (involuntary), allowing new cases to take advantage of this modality, such as dismissal for rejecting a transfer that implies change of residence or after imposing the company a substantial modification of their working conditions.

On the other hand, in the two years immediately prior to the ordinary retirement age, the same coefficients will be applied in determining the involuntary early retirement pension as in the voluntary modality in those cases in which the new coefficient is more favorable. than the one there was until now.

Regarding early retirements due to activity, the application procedure is modified and more details of the danger and hardship are specified.

Incentives for delayed retirement
Likewise, the exemption from contributing for common contingencies is established as of the fulfillment of the retirement age that corresponds to a worker and, for each year of delay, an additional percentage of 4% may be obtained, a lump sum in depending on the amount of the pension or a combination of both.

In active retirement, at least one year from the ordinary retirement age will be required as a condition for accessing it. This modality will be reviewed in the social dialogue market within a maximum period of 12 months.

In order to favor the permanence in the labor market of older workers, a 75% reduction of employer contributions to Social Security is established for common contingencies during the situation of temporary disability of workers who have reached 62 years of age.

Forced retirement clauses are prohibited
The pension reform prohibits the establishment of compulsory retirement clauses for workers under 68 years of age from the date of its entry into force. In previously signed agreements, these clauses may be applied up to three years after the end of the initial term agreed for the agreement. In addition, if these clauses are established in the agreements, companies will have to hire at least one worker full-time and indefinitely for each forced retiree .

Exceptionally, the established age limit (less than 68 years) may be lowered to the ordinary legal retirement age when the employment rate of the workers in the economic activities within the functional scope of the agreement is less than 15% of the employed persons and always that several requirements are met, including the simultaneous hiring of at least one woman indefinitely and full-time.

Improper spending and more duties of the legislature
The text also includes the culmination of the process of separation of sources of Social Security throughout the legislature, known as improper expenses . Last week, the Minister of Inclusion, Social Security and Migrations, José Luis Escrivá, Escrivá established a period of 24 months to eliminate the Social Security deficit .

Regarding the self-employed, the new real income contribution system will be included in an intermediate standard, although the commitment is that it is approved before the second quarter of 2022.

The text also provides for the creation of the State Social Security Agency within a period of six months and to address the review of the regulatory framework for widowhood pensions for common-law couples to equalize their conditions of access to those of marriages.

In addition, the safeguard clause will remain in its current regulation indefinitely and, in a maximum of three months, a regulation will be developed for the inclusion in Social Security of scholarship holders, even if they do not have remuneration.

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