Social Security will be Released from Expenses that Are not Pensions

The Executive and the Toledo Pact accelerate the work to reform the system and eliminate the deficit already in 2023.

Social Security will be released from expenses that are not pensions
Minister Jose Luis Escriva appears in Congress

The pension reform will begin in 2021. The Government is prepared for it and is only waiting to receive the recommendations that the Toledo Pact is finalizing to implement this long-awaited reform that has resisted in recent years. This was advanced this Wednesday by the Minister of Inclusion and Social Security, Jose Luis Escriva, in an appearance in Congress. “We are accelerating work to reach a great agreement that guarantees the adequacy and sustainability of the pension system. You and we also to be prepared "said the former president of Airef, who was optimistic that the Toledo Pact, which met again this Wednesday, will soon close an agreement.

For this reason, the State will assume already in 2021 a part of the improper expenses that the pension system currently has, and that contributes to having a very large deficit, which this year will skyrocket to 2% due to the effect of the pandemic, which is seven-tenths more. And so it has already been included in the spending ceiling that the Executive presented last Tuesday, in which there is already "a very significant percentage" of the nearly 23,000 million annual spending assumed by Social Security and it does not correspond. He did not reveal the specific figure, but he did specify that "in the first year we are going to do even more than we expected."

The objective is that at the end of the legislature, in 2023, Social Security will be free of expenses that are not its own, which will allow it to erase at a stroke the deficit that it currently has and that does not really correspond to it. Of course, it will only be a transfer of Social Security spending to the Budgets and therefore the structural deficit of the rest of administrations will increase, so the problem will continue to be there and we will have to think about how to finance it, if it is with new taxes or other formulas, as this week the governor of the Bank of Spain, Pablo Hernandez de Cos, warned.

Specifically, Social Security dedicates a total of 22,871 million Euros each year to expenses that do not correspond to it, which represents 1.6% of GDP, according to data recently revealed by the Ministry. Half of these improper expenses come from active employment policies, which amount to 11,360 million from contributions. But we must also add 1.8 billion quota reductions (flat rates for the self-employed or other bonuses for special regimes), almost 3 billion benefits for birth and childcare, 1 billion more from the maternity supplement, 800 million to cover gaps of contribution or the nearly 4,000 million administrative expenses for managing the system.

In total, 22,871 million that are now paid with the income of the contributions and that Escriva intends that by the end of the legislature, the State will fully finance. "This will allow the deficit to be reduced: one part will be reduced cyclically and another as a result of the transfer of expenses," he promised.

Escriva stressed that this will be the Government's first line of action in pensions. "We will take the first step to order expenses and income in this legislature once the Parliament recommends us, but in the spending ceiling we have already left it to be like that," he reiterated.

New revaluation

The second action that the Executive plans to launch next year in this area is to establish "a clear pension update model" that maintains the purchasing power of the elderly. That is, to shelve the 0.25% and revalue pensions according to the CPI, another of the recommendations that the Toledo Pact will foresee ably make shortly. "It is the best time to eliminate uncertainties to the more than ten million pensioners and bring certainty," said Escriva, who also stressed the need to align the effective retirement age with the legal one, penalizing early retirements and encouraging those that are delayed, as well as for opting to develop the complementary social security system.


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