With the entry into force of Intergenerational Equity Mechanism (IEM)all workersboth employees and self-employedbegan to notice an adjustment in their monthly income. This new tax represents a change that directly affects workers’ contributions. The MEI seeks to ensure the future of pensionsespecially with the massive retirement of the baby boom generation looming on the horizon. But, What is the real impact of this tax on your salary and what can we expect in the years to come?
This mechanism, established by Law 31/2022 and modified by Royal Decree-Law 8/2023, increases the percentage of worker contributionswith a progressive annual increase. If the majority of the burden is borne by the company, employees must also contribute, which results in a slight reduction in their income. For those receiving a salary of 1,500 euros, the impact may seem minor, but added month by month, it represents a significant change in the annual income balance. The MEI, in addition to being a burden on employee payroll, This also affects self-employed workers, who must pay the full percentage of the tax. This, coupled with the contribution system based on your returns, means that the impact can be considerable on your monthly contribution, leading many to re-evaluate their personal and professional budgets.
What is the Intergenerational Equity Mechanism (IEM)?
The creation of the MEI responds to the growing need to balance the retirement system. As life expectancy increases and more people enter retirement, the pension fund shrinks rapidly. To remedy this situation, The MEI replaces the old sustainability factor, introduce an additional contribution which distributes the cost of pensions between generations.
The MEI, in summary, It is based on a percentage applied to the contribution bases of all workers registered with Social Security. This measure seeks to strengthen pension fundsguaranteeing a smooth retirement for current and future generations.
Who is affected by the MEI?
Since January 2023, all Social Security assets, regardless of their sector or type of contract, have been subject to this tax. During the first year of application, the MEI represented a contribution of 0.6% to the contribution basedistributed between employer and employee. As it progresses, the percentage increases, reaching a 0.7% in 2024with 0.58% company managers and 0.12% workers.
This gradual increase will continue, reaching 0.8% in 2025with an additional burden for businesses and a slight increase for employees. In the long term, this rate will reach 1.2% by 2029 and will be maintained until 2050, distributed between 1% for the company and 0.2% for the worker.
The impact on the wages of workers and self-employed workers
THE The application of the MEI involves a monthly deduction from the payroll of each worker. For example, For a salary of 1,500 euros, the MEI implies a total deduction of 10.5 euros per monthof which 8.7 euros are covered by the company and the remaining 1.8 euros by the employee. Although this figure may seem low, its annual accumulation is considerable, especially for those earning modest salaries.
For the self-employed, the impact is more direct, since they must assume the entire percentage of their contribution base.. In 2025, this figure will increase to 0.8%, which will increase your monthly contribution, already increasing due to the new system based on your actual returns. The MEI thus adds a significant burden which, added to other tax factors, results in an adjustment to the budget of self-employed workers.
Until when will the MEI be applied?
The MEI was designed as a temporary measure lasting approximately a decade, remaining until around 2033. This will allow the pension system to prepare for when the baby boom generation retires, ensuring there is sufficient funds to meet future retirements.
MEI contracts and work-study training
It is important to note that the MEI It also applies to work-study training contracts. The regulation establishes that, although other contribution elements in this contract are eligible for discounts, The MEI does not grant any bonus. This implies that all companies must include this tax in the calculation of contributions for this type of contracts, in accordance with current regulations.
In short, The MEI represents a gradual but significant adjustment which, month after month, affects workers’ salaries. Although this measure aims to protect the retirement system, for many it represents a “hit” on their income which, over the years, will become even more visible. In the meantime, employees and self-employed workers should prepare to assume this new burden on their budgets and closely monitor any legislative changes likely to modify the impact of the MEI on their finances.
