Minimum pensions increased

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In January 2005, Spain's Socialist government increased minimum pensions by between 4.5% and 8.07%, as part of a commitment to raise pensions by 26% during its term of office. This followed increases enacted in 2004 by the previous People's Party administration, based on an earlier agreement signed by the CEOE employers' confederation and CC.OO trade union confederation.

The Spanish pension system is divided into two parts: contributory pensions, to which social security contributions grant entitlement; and non-contributory pensions, to which the proven existence of a necessity (illness or disability, widowhood, old age without income, orphanhood etc) gives entitlement The institutions of the social security system guarantee social, health and economic benefits as a right. These are the National Social Security Institute (Instituto Nacional de la Seguridad Social, INSS), the General Social Security Treasury (Tesorería General de la Seguridad Social, TGSS) and the Social Institute of the Merchant Navy (Instituto Social de la Marina, ISM).

The 'Toledo pact' (Pacto de Toledo) on the social security and pensions system (ES9710220F and ES0306207F) was signed in 1995 by the political parties and social partners and enacted by a 1997 law on consolidation and rationalisation of the social security system. This pact and its revisions - most recently in 2003 (ES0311201N) - aims to reconcile the financial sustainability of the system with providing a social right to pensions.

The recent history of the state pension system shows a pattern of expansion and universalisation of the right of access, though the amount paid to individual pensioners decreased in the course of the 1980s. Later there was a progressive rationalisation and reduction in the rights to the contributory pension in the 1990s and the first few years of the current decade, accompanied by the expansion and introduction of non-contributory minimum incomes and pensions. Minimum pensions, however, were regarded as failing to improve the situation of the groups who received them. Therefore, the trade unions called for an increase in minimum pensions as a 'citizenship right', while they accepted a gradual rationalisation of the contributory pension system that would, in their opinion, guarantee the future of social security funding.

However, the social security system has been in financial health recently, showing major surpluses that have even allowed the funding of state activities beyond the strict social functions. This system's surplus has allowed an improvement in the rights of highly disadvantaged groups. In 2001, the conservative People's Party (Partido Popular) government of the time concluded an agreement on pensions (ES0106244F and ES0303104N) with the Trade Union Confederation of Workers’ Commissions (Comisiones Obreras, CC.OO) and the Spanish Confederation of Employers' Organisations (Confederación Española de Organizaciones Empresariales, CEOE), though it was not signed by the General Workers’ Confederation (Unión General de Trabajadores, UGT), which was very critical of it. The agreement provided for enhanced funding and for improved conditions for pensioners in areas such as early retirement, minimum benefit levels and widows' benefits.

Latest improvements

In January 2004, the PP government adopted a royal decree on the improvement of survivors' pensions and increased pensions in compensation for inflation (ES0402103F), in line with the agreement on pensions signed with CC.OO and CEOE. This resulted in an overall increase in pensions expenditure of EUR 2,827 million, of which EUR 1,873 million was assigned to revising and improving minimum pensions. The review and improvement represented a general increase of 2% in all pensions (ie the forecast inflation rate) and an increase of 5.8% in survivors' pensions, minimum retirement pensions for people under the age of 65, orphanhood pensions and pensions for relatives. The survivors' pensions of people under 65 were increased by 14% and pensions under the compulsory old age and invalidity insurance (Seguro Obligatorio de Vejez e Invalidez, SOVI) scheme by 4.8%. The upper limit of the public pension was raised to EUR 2,086.10 per month and EUR 29,205.40 per year. This benefited 8.3 million pensioners.

In fulfilment of its electoral promises, a further increase in minimum pensions was introduced in January 2005 by the new Socialist Party (Partido Socialista Obrero Español, PSOE) government that took office in April 2004 (ES0405202N). This forms part of a 26% increase in minimum pensions that will be applied in the course of the current legislature. Minimum pensions were raised in January by between 4.5% and 8.07% - 2% in line with the forecast inflation rate for 2005, plus 1.5% to compensate for the difference between the forecast and the real inflation rate in 2004, plus an additional improvement of between 1% and 4.5% for various groups. Minimum pensions for people with a dependent spouse were raised by 8.07%; minimum pensions for people without a dependent spouse, and for people with dependent disabled children over the age of 18 were raised by 6.55%; and non-contributory pensions and SOVI pensions (which are to be discontinued) were raised by 4.5%. Furthermore, pensioners with total permanent disability aged between 60 and 64 will now for the first time be entitled to a minimum pension - an improvement that will benefit 40,766 pensioners in 2005. Overall, 3.5 million pensioners will benefit from the increases. The general average retirement pension has risen from EUR 653.33 per month to EUR 676.20 in 2005, an increase of 3.5%.

The increase introduced by the PSOE government met with the satisfaction of the trade unions, including UGT, which did not sign the 2001 pensions agreement.

Positions of political parties

Parliament unanimously approved the pension increases proposed by the PSOE government . The PP criticised the government because it felt that the government’s economic policy failed to reduce inflation, which is counterproductive for the 'competitiveness of the country'. It believes that inflation (ES0405203N) will place a heavy burden on the social security system and the state in seeking to guarantee the purchasing power of pensions.

The nationalist political parties, such as the Galician Bloque Nacionalista Galego (BNG) and Basque Partido Nacionalista Vasco (PNV), stated that the level of minimum pensions is still very low.

Commentary

The Spanish social security system is in good financial health and seems to be developing as a viable system (ES0405205F), providing that its income is not threatened. At present the high number of social security contributors, the well-stocked Reserve Fund (Fondo de Reserva) and other indicators are very positive, and there is a large surplus. The government's latest increase in minimum pensions can therefore be easily paid for.

The improvement in minimum pensions is highly positive, reversing a tendency towards cuts in in real terms. However, it is not yet clear whether this increase in minimum pensions will be accompanied by cuts in contributory pensions in the near future (an issue linked to a debate on the calculation of pensions based on a person's whole working life).

There is arguably a need for an improvement in pensions in general, and particularly in contributory pensions. This improvement could be funded by existing job creation, the legalisation of the clandestine economy, a better distribution of income through the tax system (prosecution of fraud, a more progressive system, and a reinforcement of progressive direct taxes), and an increase in employers' social contributions to discourage the use of temporary employment. Some of these possible reforms do not appear to be on the agenda of the current government. (Daniel Albarracín, CIREM Foundation)