Pensions agreement signed

In April 2001, a major agreement on pensions reform was signed by the Spanish government, the CEOE and CEPYME employers' confederations and the CC.OO trade union confederation. The accord provides for enhanced funding and for improved conditions for pensioners in areas such as early retirement, minimum benefit levels and widows' benefits. The UGT union confederation did not sign the deal.

After a long period of dialogue (ES0006194F), on 9 April 2001 a new Pact on Pensions (Pacto de Pensiones) was signed by: the Prime Minister, José María Aznar; the chairs of the two most representative national employers' confederations, the Spanish Confederation of Employers' Organisations (Confederación Española de Organizaciones Empresariales, CEOE) and the Spanish Confederation of Small and Medium-sized Enterprises (Confederación Española de la Pequeña y Mediana Empresa, CEPYME); and the general secretary of the Trade Union Confederation of Workers' Commissions (Comisiones Obreras, CC.OO). The new deal is a continuation of the 1995 "Toledo Pact" - a report on the future reform of the Spanish social security system, agreed by the most representative social partner and political organisations and the government (ES9710220F) - and the subsequent 1996 agreement on the rationalisation of the pension system, signed by the government, CC.OO and the General Workers' Confederation (Unión General de Trabajadores, UGT). UGT did not sign the latest agreement

The agreement will benefit almost 4 million pensioners - 2 million widows and widowers, 1.5 million recipients of minimum benefits and almost 260,000 orphans - and will increase the pensions of 2.6 million self-employed workers. Furthermore, the government has agreed not to increase the number of years of employment taken as the basis for calculating pensions entitlement until 2003. The agreement provides for a homogeneous and coherent growth in social expenditure to around 10% of GDP.

The main contents of the agreement

Most of the points of the new pensions agreement - the implementing legislation for which was still completing its passage through parliament in June 2001 - will remain in force until 2004. The key provisions are as follows.

• The sources of funding of the social security system will be separated by means of successive contributions by the state over 12 years to finance supplements to minimum benefits. The reserve fund will thus be provided with between ESP 814 billion and ESP 1,000 billion by 2004.

• Widows/widowers' benefits has been increased from 45% to 52% of the full amount of the original benefit, and to 70% when the recipients have dependants and the benefit is their only source of income. For orphans, the age until which they are eligible for benefit has been raised by one year, to 22 for partial orphans and 24 for total orphans, and the pensions of retired persons and recipients of minimum widows' pensions under the age of 65 have been increased.

• The deal provides for a system of flexible retirement after the age of 65 years, with those involved receiving a partial pension while working on a hand-over contract (whereby an employee approaching retirement and a newly recruited employee share a job on a part-time basis - ES9711234N).

• Early retirement at the age of 61 years has been introduced for persons who made no pension contributions before 1967 (such early retirement is currently restricted to those with a pre-1967 contribution history), if they have contributed for 30 years and have been in involuntary unemployment for six months. It is estimated that the agreement's reform of early retirement will lead to an increase in expenditure on pensions of ESP 22 billion. The Ministry of Labour calculates that over the next three years this reform will lead to an increase of 12,000 in the number of people taking this type of retirement, currently about 70,000 per year.

• There will be reductions and allowances in social security contributions in respect of women who return to work after maternity, having suspended their employment contract, and in respect of older workers. From 2002 to 2004, the National Institute of Employment (Instituto Nacional de Empleo, INEM) will pay the social security system about ESP 100 billion per year to cover the employers' social contributions for returning women in the first year after maternity. Until 2004, ESP 70 billion will be assigned each year to pay employers' social contributions for workers over 60 years of age. The subsidies to the contributions will be 50% for workers aged 60, increasing gradually to 100% for those aged 65. The aim is to extend this measure to those aged 55 during the period of the agreement.

• A new Social Security Agency (Agencia de la Seguridad Social) has been set up to simplify and rationalise management of the system.

• The development of private pension plans is recommended.

Government views

In the opinion of the centre-right People's Party (Partido Popular, PP) government, the April deal is "the best possible agreement", and has been achieved through an effort by all concerned to create a system that is "fairer, more modern and viable." The agreement guarantees the future of the social protection system, ensures that there will be funding for the "unavoidable and inevitable" challenges of the next few decades, and lays the basis for progressively taking into account the contributions made by workers during their entire working life in calculating pension entitlement.

According to the Ministry of Labour, the government is still fully willing to enter into a dialogue and reach agreements with the social partners, in a clear reference to UGT, which remained outside the new pensions agreement. According to the government, UGT's position is due to political reasons rather than trade union reasons, and the opposition Socialist Party (Partido Socialista Obrero Español, PSOE) is behind the disagreement.

Social partners' positions

CEOE and CEPYME underline that the employers' contribution to the social protection system is a great burden for companies. They feel that these contribution rates should be lowered to the European average. For this reason, in 1996 the employers' organisations did not sign the previous pensions agreement, but on this occasion they feel that substantial improvements have been introduced. Some groups of employers, however, have criticised the lack of a "profound reform" of the pension system, and feel that a transition should be started from the current system toward a model of individually capitalised pensions.

The CC.OO leadership feels that the main achievements of the agreement include: the fact that workers can now take early retirement even if they did not pay contributions before 1967; the creation of a major reserve fund; the improvement in widows' pensions; the supplements to minimum pensions; the raising of the age until which orphans are eligible for pensions; and the continuing participation of the trade unions in the design and monitoring of the social security system.

The agreement was not signed by UGT. The union confederation considers that the agreement is negative because the 12-year period established for separating the sources of funding of the social security system is seen as excessive, and may increase the risk that social security funding will be decapitalised. UGT demands that the right to "voluntary" early retirement should be guaranteed and that persons over the age of 52 who find themselves excluded from the labour market should be guaranteed a "fair" pension, even if they are not involved in a redundancy procedure. It also states that "it is essential to state clearly" that as of 2003, when the period of employment used to calculate the pension will be 15 years, "the period for calculating the regulatory base will not be increased."

Commentary

Like the 1996 agreement, the April 2001 pensions deal was not supported by all the social partners. However, this time instead of the employers' organisations CEOE and CEPYME, it was the UGT trade union that failed to sign, following the recent labour reform introduced by the government without the agreement of the social partners (ES0103237F). This has led to a rupture in the unity of action that the two most representative trade union confederations - CC.OO and UGT - had previously maintained for a long period. (Daniel Albarracín, Fundación CIREM)