Spain’s coalition government strikes deal on pensions, shifting cost to high earners

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By Belén Carreño

MADRID, March 10 (Reuters) – Spain’s Socialists and their junior coalition partners Unidas Podemos have struck a deal on changes to the pension system that will put most of the cost on its highest earners, Reuters has learned from sources in the negotiations.

The reform is a key condition required by Brussels for Spain to get access to a fourth tranche of European post-pandemic recovery funds, and has been a point of dispute within the coalition government as it sought a formula that would increase revenue without penalising future pensioners.

The leader of Podemos, minister Ione Belarra, announced the agreement earlier in the morning, saying the government had found a way to increase revenues without harming future pensioners.

A government source told Reuters that Madrid had received positive preliminary feedback from the European Commission about the proposal. A spokesperson for the European Commission said they had been informed but that official opinion would not come for some months.

Other countries in Europe are also changing their pension systems. Fierce, cross-sectoral protests have raged in France in recent weeks over plans to cut benefits or extend the retirement age for pensioners by two years to 64.

Spain carried out a major pension reform in 2011 when it raised its retirement age to 67, but that proved insufficient to offset the high costs of the system, which has come under pressure from measures such as the raising of pension payouts in line with average inflation of 8.5%.

The government plans to press ahead in spite of opposition to the proposal by Spain’s main business association, the CEOE. The proposal will be discussed on Friday with the main trade unions and CEOE.

A so-called “solidarity tax” will temporarily remove tax exemptions from social contributions for high earners. The majority of the new tax will be paid by these earners’ employers.

The government also plans to double from 0.6% a recently-introduced social contribution known as the “Mechanism of Intergenerational Equity” which was designed to generate further revenue. Collection revenues from that mechanism are estimated by government to be 2.8 billion in 2023.

Although the coalition government does not have a parliamentary majority, other left-wing parties are expected to support the reform if it is backed by unions.

The government will have to persuade unions to agree to raising the minimum number of years of contribution to 29 years from 25 years, a key aspect of the reform required for Brussels’ approval. It is proposing making that increase voluntary until 2044.

Spain’s Gender Equality Minister and leader of Podemos Ione Belarra addresses a press conference following a cabinet meeting held at La Moncloa Palace in Madrid, Spain. EPA-EFE/JAVIER LIZON

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