The so-called Intergenerational Equity Mechanism (MEI), the tool created by the Ministry of Social Security during the last pension reform to deal with the massive retirements of the baby boom generation, has accumulated a collection of 4.8 billion euros for the pension fund. thanks to the increase in social contributions paid equally by companies and workers. It has scraped together 2,700 million during the year 2023 and has just over 2,100 admitted in the first seven months of the year, according to the monthly budget execution data published by Social Security.
The employment dynamic, combined with the increase in the rate applied in January (from 0.5% to 0.6%), explains a 45% increase in revenues generated by the MEI until the seventh month of the year. The pension fund is at its highest level since 2018, with more than 7 billion euros.
This is a definitive quota “applicable in all schemes and in all cases where contributions are paid for the eventuality of retirement, which will not be calculated for the purposes of benefits”, according to the document of projections of public expenditure on contributory pensions of the system. of Social Security. What does this lead to? It does not give the worker any additional right to benefits or offer any improvements to the future pension, despite the additional effort. This income goes directly to the Reserve Fund, the famous pension piggy bank which is receiving money for the first time in more than a decade.
This increase in the rate of social security contributions for common pensions (those that finance, among other things, pensions and contributory benefits) began in January 2023. The former head of the pensions area, José Luis Escriva, led the pension reform by introducing what was initially going to be a 0.6% surcharge for all workers – except the self-employed – who pay pension contributions.
During the negotiation, the government ended up adopting the concept of MEI imagined by the unions: this additional quota will gradually increase to 1.2% in 2032 and will remain at this level until the middle of the century. This modification, approved in March 2023, has finished convincing the European Commission, which is examining with light and stenographers the different structural reforms that it has demanded from Spain in exchange for receiving part of the European Next Generation EU funds.
The implementation of this quota, when it began to tax 0.6% of the salary, has already surprised workers. As expected in the reform, it increased again in January to reach 0.7% of the labor cost of each worker and took a new hit on the first payroll of the year.
This contribution is distributed 83% by the company and 17% by the worker, in the same way as the rest of the contributions for common pension provision. Thus, the company pays 0.58% and the employee 0.12%. In this way, 28.3% of the salary is intended for common contingencies, plus an additional 0.7% that will be used to pay the pensions of baby boomers. The rate applied for current unforeseen events is 29%.
On this economy until the middle of the century, the government in place will be able to achieve up to a maximum of 0.91% of annual GDP in the phase of greatest financial tension due to the withdrawal of the baby boom, at the end of the 2040s. But it is only from 2033 that the government will be able to use this piggy bank.
In a decade, the reform will give the government in place the possibility of having an annual amount from the Reserve Fund to meet the payment of pensions. Prior agreement in the Council of Ministers, Social Security will be able to use from 0.1% of GDP to pay pensions in 2033an amount that will gradually rise to almost one point of GDP by the end of the following decade, in 2047.
The government’s forecasts foresee a transfer of 120 to 130 billion euros that will go to the Reserve Fund to face the high expenses caused by the aging process of the population and the retirement of the “baby boomers”. From this year, Moncloa hopes that the income generated by the MEI will fill its piggy bank to around 9 billion. If Social Security generated more income than expenses in the coming decades, the surplus would also go into this piggy bank.
