(Update May 18, 2023) As a follow-up to the previous information published about Spain’s 2023 Pension Reform (the Royal Decree-Law 2/2023 published on March 16), SARE, Asinta’s employee benefits consulting Partner in Spain, summarizes the new, primary developments below. All of them will be gradually implemented with transitional periods.
Gradual increase in the maximum contribution base to Social Security
From 2024 until 2050, the maximum contribution base will increase by 1.2 percentage points per year above the Consumer Price Index (CPI) and will be updated annually in the General State Budget Law.
Gradual increase in the maximum Social Security pension
From 2024 to 2050, Spain’s maximum Social Security pension will increase by 0.115 percentage points per year above the CPI and will be updated annually in the General State Budget Law. Therefore, until 2050, this increase will be lower, proportionally, to the increase that the maximum contribution bases will experience.
A higher increase is established to begin in 2050. The cumulative annual growth starts at 3.2% in 2051 and will end at 20% in 2065.
Modification of the Intergenerational Equity Mechanism (IEM)
On January 1, 2023, the validity of the IEM began. This consisted of increasing IEM by 0.6% of the existing contributions in all the regimes. Employers cover 0.5% and employees 0.1%.
The new regulations gradually increase this percentage until 2029 and remain constant after that at 1.2% (1% by the company; 0.2% by the worker).
Additional solidarity contribution
Contributions are gradually increased on the wage bill that exceeds the maximum base of Social Security contributions. These contributions will be determined with a different percentage depending on the sections of the remuneration to which it applies and establishing a transitional period from 2025 and ending in 2045.
|YEAR||Salaries from Maximum Base (MB) up to 10% additional to MB||Salaries from 10% up to 50% additional to MB||Salaries over 50% additional to MB|
|Gradual increase 2025-2044||From 0.92% up to 5,27%||From 1% up to 5,75%||From 1,17% up to 6,71%|
|2045 and next||5,5%||6,00%||7,00%|
The distribution of the additional solidarity contribution between employer and employee shall maintain the same proportion as the distribution of the contribution rate for common contingencies.
Modification of the contribution period for the calculation of the regulatory base
Once the transitional period foreseen until 2038 has ended, a double alternative is offered to the beneficiary of the public retirement pension, in relation to the contribution period to be computed for the calculation of the regulatory base.
- Retirements effective until December 31, 2040 may select any of the following two contribution periods:
- Period of 25 years, currently in force, or
- Period of 29 years, discarding the 24 monthly payments with lower contributions
- For pensions that are caused in 2041, 2042 and 2043, the calculation period of the last 25 years will be applied with a regulatory base that will include the contribution bases of the last 306, 312 and 318 months respectively, when said calculation is more favorable than that in force on the date on which the pension is caused.
- From 2044 onwards, the regulatory base will be determined only by point 2.
(Original article posted March 28, 2023) Spain’s 2023 pension reform provides different measures for increasing Social Security contributions and very relevant changes in the retirement pension system. The novelties and most relevant aspects for companies regarding Royal Decree-Law 2/2023 (March 16) are urgent measures for the extension of pensioners’ rights, the reduction of the gender gap, and the establishment of a new framework to sustain the public pension system.
1. Maximum contribution bases
It is established that the maximum limit set for the Social Security contribution bases of each of its regimes will be updated annually in the General State Budget Law in a percentage equal to that established for the revaluation of contributory pensions.
2. Additional solidarity contribution
On the other hand, an additional solidarity contribution is introduced for salaries that exceed the maximum contribution bases for employed workers. Specifically, the solidarity contribution will be the result of applying (i) a rate of 5.5% to the part of remuneration between the maximum contribution base and the amount higher than the aforementioned maximum base by 10%, (ii) a rate of 6% to the part of remuneration between 10% higher than the maximum contribution base and 50%, and (iii) a rate of 7% to the part of remuneration that exceeds the previous percentage.
The distribution of the solidarity contribution rate between employer and employee shall maintain the same proportion as the distribution of the contribution rate for common contingencies
The additional solidarity contribution enters into force on January 1, 2025, and will be increased from 2025 until 2045, when it will reach the definitive rate.
3. Final contribution of the intergenerational equity mechanism
To preserve the balance between generations and strengthen the long-term sustainability of the Social Security system, an intergenerational equity mechanism is established consisting of a finalist contribution applicable in all schemes and in all cases in which contributions are made for the contingency of retirement that will not be computable for benefits and that will nourish the Security Reserve Fund Social. Specifically, the contribution will be 1.2% (1% for the company and 0.2% for the worker).
The finalist contribution of the intergenerational equity mechanism will take effect from January 1, 2023, until December 31, 2050, according to the scale provided for in the legislation.
In 2023 it will be 0.6% (0.5% in charge of the company and 0.1% of the worker) and will increase progressively until 2029 according to the scale provided for in the legislation. From the year 2030 through 2050, the same 1.2% will apply, keeping the same distribution rate between company (1%) and employee (0.2%)
4. Temporary disability (TD) processes
Modifications are also introduced regarding TD processes. The main novelty is that, after the exhaustion of the 365-day period, the lack of medical discharge will mean that the worker is in the situation of extension of temporary disability as it is presumed that within the subsequent period of 180 days, the employee can be discharged for healing or improvement.
5. Calculation of the retirement pension
The regulatory base of the retirement pension will result from dividing by 378, the sum of the contribution bases of the employee during the 324 months before the month before the causal event, obtained following the provisions of the legislation.
The 348 consecutive months immediately preceding the month before the causal event will be selected. From these 348 bases calculated under the provisions of the legislation, the 324 contribution bases of greater amount will be chosen.
The bases corresponding to the 24 months immediately before the month before the causal event will be computed in its nominal value. The remaining bases will be updated according to the evolution of the CPI from the month to which they correspond until the month immediately before that, in which the period referred to in the previous rule begins.
These modifications regarding the method of calculating the retirement pension will enter into force on January 1, 2026. However, until January 1, 2037, they will be applied gradually following the transitional provision provided for in the legislation.
On the other hand, another transitional regime is regulated explicitly for the cases of application of previous legislation to cause the right to retirement pension (Fourth Transitory Provision of the General Law of Social Security) until 2044. It applies to the only effects of Regulatory Base calculation
6. Calculation of contribution periods
To prove the contribution periods necessary to cause entitlement to retirement, permanent disability, death and survival, temporary disability, and birth and care of a child, the different periods during which the worker has remained registered with a part-time contract will be taken into account, whatever the duration of the working day carried out in each of them.
7. Social Security System for students who carry out training practices or academic practices
It regulates the inclusion in the Social Security system of students who carry out training practices or external academic practices included in paid and unpaid training programs. This new regulation will enter into force on October 1, 2023.
8. Provisional resolution of pensions recognized under international standards
When it is verified that the applicant meets all the requirements to access the pension by counting only the contributions made in Spain, the right to said pension will be recognized. It will be a provisional recognition that could be affected by periods of certified insurance or subsequent rulings of affected States.
SARE, Asinta’s employee benefits consulting Partner in Spain, provided this article on Spain’s 2023 pension reform. If you need support with your employee benefits in Spain, please contact Asinta, and we will put you in touch with SARE.