Legislation reforms social security system

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The long debate on the reform of the Spanish social security system recently made progress with the enactment of Law 24/1997 of 15 July on the Consolidation and Rationalisation of the Social Security System. This law, which is the result of a long process of reflection and debate, marks the beginning of a new stage for the social security system.

Background

With the dual goal of maintaining the current social security system, constitutionally defined as public, universal and sufficient, and of guaranteeing its future viability in a new social, economic and financial context, a committee was constituted on 21 February 1994 in the Budgets Commission of the Congress of Deputies (lower house). The meetings of this parliamentary committee were attended by academic experts and specialists from the public administration (central government) and by representatives of the social partners, amongst others. This committee concluded its work by drawing up the "Report of the Committee for the analysis of the structural problems of the social security system and of the main reforms that must be undertaken", a document known colloquially as the "Toledo Agreement" (because the meeting of the committee at which the final agreement was reached was held in that city). After the appropriate parliamentary procedures, the Report was approved without modification by the plenary session of the Congress of Deputies on 6 April 1995, achieving the practically unanimous support of the Chamber.

The Toledo Agreement proposes a gradual reform of the social security system with the aim of guaranteeing in the future a fair, balanced and solidaristic public pensions system according to the principles that inspired Article 41 of the Spanish Constitution, which gives the public powers a mandate to maintain a public social security system based on universality and sufficient services. It also stressed that it would be advisable for future improvements and adaptations of the social security system to be made with the widest possible political agreement and the greatest possible support of the social partners. The Toledo Agreement thus paved the way for the Agreement on the Consolidation and Rationalisation of the Social Security System signed by the Government and the CC.OO and UGT trade union organisations.

These two documents inspired Law 24/1997 on the Consolidation and Rationalisation of the Social Security System, enacted on of 15 July 1997, and marked the beginning of a new stage of social security reform characterised, unlike previous moves towards reform, by political consensus and by the success of the social dialogue on the issue. This political and social framework will undoubtedly turn out to be a favourable point.

It is also positive that the agreement signed by the Government and the most representative union organisations contains clauses that envisage the establishment of a "permanent commission" made up of its signatories in order to carry out a continuing analysis and monitoring of the evolution of the social security system. It also envisages the strengthening of the General Council of the National Institute of Social Security, a consultative body comprising the social partners, in order to aid the Government in its task of guiding the social security reform process.

Objectives

The reform of the social security system envisaged by the 1997 Law does not cover all the amendments indicated as necessary in the Toledo Agreement, which explains some of the discrepancies that it has aroused. The Law provides several specific reform measures, but they all aim, as specifically observed in the "considerations" section of the legal text, at guaranteeing the financial balance of the system, consolidating it and rationalising it. The purpose of the Law is to solve what is considered to be the most significant problem of social security in the future: possible economic and financial instability due to constant growth of expenses and a reduction in income from contributions due to demographic changes (an ageing population), and to the decrease in employment. These measures can be divided into two main groups: one including the measures aimed at separating sources of income and classifying them according to the type of services they cover; and the other including the measures aimed at reducing some monetary benefits.

Specific contents

Reorganisation of sources of finance

The 1997 Law deals with the reorganisation of the sources of finance of the social security system. Therefore, though it does not modify them, it separates and classifies them. Thus, the universal benefits received by people who have not contributed (those who receive a pension but have not worked) are financed by the state, whilst those received by people who have contributed (when the pension is related to the working life of the person) will be financed by the contributions made by employers and workers. This separation of financial sources will take place gradually up to the year 2000. This specific reform is accompanied by the constitution of a reserve fund consisting of the surplus social contributions that may be made in each financial year, in order to meet the future needs of the social security system.

Retirement pension

The Law introduces amendments that provide a more proportional treatment in monetary benefits awarded by the social security system, thereby reducing their costs. The most significant reforms are those involving retirement pensions. The period of contribution that is taken to determine the regulatory basis of the pension will rise gradually from eight to 15 years, leading by this means to a decrease in the amount that pensioners will receive. In some cases, the rate applicable to the regulatory basis for determining the amount of the pension (which depends on the period of contribution) has been lowered, thus causing a second reduction in the amount of the retirement pension. The purpose of this is to reduce social security costs by the creation of a new proportion of the amount contributed by the worker to the pension received. The Government also plans to grant reductions in social security contributions when workers choose to continue in employment after reaching the ordinary retirement age of 65 years (ES9708216N).

Other measures

It is planned to obtain greater legal security in relation to permanent disability pensions by drawing up a list of diseases and evaluating them, in order to determine the level of reduction in working and earning capacities. It is intended to make permanent disability and degrees of disability easier to determine and thereby make the system more objective.

In order to ensure that purchasing power is maintained, even for the minimum pension, there will be an automatic revaluation each year in line with the Retail Prices Index (RPI)forecast for that year. Mechanisms for updating and adjusting pensions are also envisaged for cases in which the RPI does not coincide with the forecasts.

To reinforce the principles of solidarity and sufficiency that inspire the protective action of the social security system, in certain cases the 1997 Law has improved the minimum widows' pensions for beneficiaries of less than 60 years of age, which have been brought into line with pensions received by persons aged 60-64. In certain cases, the maximum age for receiving the orphans' pension has also been raised: when orphans are unemployed, they will receive the pension provided they were under 21 years old when the parent died or 23 years old if both parents died.

Finally, the Law stresses once more the need to adapt the "special social security rates" in order to correct financial imbalances. With regard to the Special System for Self-employed Workers, it is established that within eight months of the coming into force of the Law, the Government will present a technical and economic report on improving the services provided by this system, in order to bring it into line with the general system. The Government has also committed itself to try to include people doing housework and who are not entitled to other benefits in this special system.

The position of the social partners

In spite of the previous political consensus and the social agreements that have been signed in this respect, there have been some criticisms of the Law. The United Left (Izquierda Unida, IU) - though not all the members of its parliamentary group - has rejected the Law, arguing that it does not observe the Toledo Agreement. The trade unions have not opposed it, but have expressed their concern about the cuts in the pensions for some groups. However, they assume that there will be instruments to monitor the application of the law and to ensure that the main objectives are respected.

Commentary

It must be stressed that it is important that a law of such importance for future social policy has achieved such a high degree of parliamentary support and social consensus. However, it is to be regretted that an effort was not made for all the parliamentary groups to vote in favour.

It should not be forgotten that the income of people who retire in the future will be reduced, sometimes considerably, and the insecure and precarious labour market will force some to work for many years to obtain a relatively low pension.

Some of the social partners which have supported the law may assume that in the future public benefits can only be minimal, and that people will have to complement them privately. Also, they probably do not expect social conflict over this since those affected will not be current pensioners or people due to retire in the next few years. Both assumptions may partly explain the consensus that has been reached. However, the possibility of conflict cannot be ruled out, as has been seen in companies that are eliminating their pension agreements with the workers. (F Pérez Amorós, Area of Labour Law and Social Security, Autonomous University of Barcelona)

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