The Government Will Raise All Pensions By 8.5%: 860 Euros A Year For Minimum Pensions And 3,350 Euros A Year For Maximum Pensions

pensiones playita

Fedea, the foundation of the former savings banks, has drawn up a report highly critical of the Government’s proposed increase in pensions (8.5% for all pensions). According to FEDEA, “In the debate on the revaluation of pensions, two issues are being mixed up that should be dealt with separately. On the one hand, the sustainability of pensions, which is a structural problem that has not yet been resolved, and, on the other, the revaluation of pensions in line with the CPI at such an exceptional time as the present, with inflation soaring. The first will require an in-depth reform of our pension system to adapt it to the new demographic reality. The second must be analysed taking into account the exceptional nature of the moment”.

So FEDEA “given the current economic situation, proposes a fairer pension revaluation scheme than the one currently envisaged for the most vulnerable elderly and for young people”. And they consider that “it is necessary for the system to have escape valves that allow the revaluation of pensions to be spread over several years. This gradual recovery of the loss of purchasing power is also being asked of workers, to avoid the second-round effects of inflation and, consequently, should be demanded of retirees with higher pensions” .

And they propose, exceptionally, to replace the generalised revaluation of all pensions with the CPI by a rise depending on the amount of the pension: i) minimum pensions (under 800 euros) would rise more than inflation, by 11%; ii) a gradual revaluation from this 11% to 2.5% for pensions between 800 and 1,400 euros per month; and iii) a rise of 2.5%, the same as that established for civil servants, for pensions of over 1,400 euros.

In his opinion, this proposal is not only more efficient but also fairer for several reasons.

First, this proposal is more supportive of the most vulnerable pensioners. All pensioners with a pension of less than 1,000 euros per month will see their pension increase by more than 8.5%. More than 52% of pensioners will see their pensions revalued by more than the increase proposed by the Government. In this way, scarce fiscal resources would be concentrated on the most needy pensioners.

Second, it seems reasonable that the highest pensions should participate in the Pact on Income. It should be noted that the maximum pension (39,500 €) is almost 15,000 € higher than the average salary in Spain (25,125 €) and more than 5,000 € higher than the average salary of public employees (34,608 €). A generalised and automatic increase of all pensions in such a difficult economic situation is less progressive. The minimum pension amounts to €10,100 per year and the maximum pension to €39,500 per year. Therefore, a generalised increase of 8.5% means an increase of 860 euros for those receiving a minimum pension, but an increase of 3,350 euros for those receiving the maximum pension. In other words, with the generalised increase, those with the maximum pension receive practically four times more than those with the minimum pension.

Thirdly, raising maximum pensions by 8.5% means raising the maximum contribution bases by 8.5%. This is a measure that clearly goes against the Income Pact, as it raises the wage bill of many skilled workers, which will have a pernicious effect on inflation.

According to FEDEA, the proposal represents a tax saving of 6.225 billion euros in 2023, but as pension increases are consolidated over time, the savings will be much greater in the medium term.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.