Pension reform in Spain: what are the key issues and who will benefit?

Modernization of the pension system guarantees the purchasing power of pensioners and is especially beneficial for vulnerable groups, people with illegal work, women and young people.

Pension reform

The modernization of the pension system was completed with the approval by the Chamber of Deputies of a resolution approved by the Council of Ministers on March 16, which aims to expand the rights of pensioners, reduce the gender gap, and create a new system of sustainable development. The process began in 2021 after the approval of the Toledo Agreement recommendations the previous year.

The Minister of Integration and Social Security, Jose Luis Escriva, said that this is a thorough reform that will strengthen the sustainability of the system and promote equality and solidarity in the short, medium and long term. He also emphasized that it guarantees the purchasing power of current and future pensioners, is consistent and aims to increase incomes.

Escrivá also emphasized that the reform, which he worked on side by side with Brussels, strengthens the first pillar of the welfare state, provides peace of mind and certainty, and is in line with all phases of the Recovery, Transformation and Sustainability Plan and all recommendations of the Toledo Agreement.

The key to pension reform

Strengthening income, capital and solidarity in pension schemes is based on four fundamental principles:

1. gradual increase of the maximum contribution base;
2. setting the solidarity quota so that wages remain above the maximum contribution base and are therefore exempt from contributions, contributing to the sustainability of the system;
3. Replacing the sustainability coefficient with an intergenerational equity mechanism that provides specific benefits to young people and increases the resources of the «pension fund»;
4. A new model for calculating the statutory base allows for a choice between the current formula (the last 25 years are taken into account) and a more favorable formula for workers with a contribution gap (the worst 24 months of the last 29 years can be excluded from the calculation). This will be applied gradually.

Main beneficiaries of the reform

The changes will benefit:

• Young people, they will avoid the pension cuts that would have been made as a result of the 0.25% sustainability and revaluation coefficient, as well as a cumulative 50% reduction by the time of retirement;
• Employees with irregular service;
• Persons with minimum funded pensions, pensions that are not subject to contributions, and pensions of widows and widowers;
• Pensioners with a dependent spouse will see their minimum pension increase by 22% over four years to reach €16,500 per year in 2027.

With regard to women, measures to improve the treatment of women“s contribution shortfall and increase the allowance to reduce the gender gap in pensions are being strengthened as part of measures to reduce the gender gap.