During the last pension reform, the government created what is called the “solidarity quota” to extract more income from the highest earners and get them to pay social security contributions for the whole of their payroll. As? This extraordinary contribution includes an additional rate which comes into force on January 1, 2025. It will start from 0.92% and reach 1.17%, a rate which will apply to the salary scale exceeding the maximum price base. The government estimates that this limit will be around 59,000 euros in 2025 once updated, so that more than a million employees who currently exceed this threshold will pay additional installments.
The maximum contribution base is currently 56,600 euros per year or 4,720.50 euros per month. Until now, this limit limited the part of the salary that pays social security contributions and this has its reason: the public pension is also limited. This changes following the regulation approved last March, which will also tax the salary scale which was previously exempt and will not lead to an improvement in the state pension.
The latest pension reform directs efforts towards higher incomes – with the solidarity quota or “destope” – with virtually no reduction in spending. It seeks to correct a historical gap with Europe: Spain has a lower maximum contribution base (including salaries) than other peer countries. There are workers who do not contribute for their entire salary, because the maximum pension is also lower.
Unlike the Intergenerational Equity Mechanism (MEI), which applies to all salaries, the solidarity quota reaches high incomes. The solidarity contribution is a non-contributory but rather “redistributive” additional contribution.
What does this mean? It serves to generate an additional element of income which will be used to pay future pensions, but does not generate an improvement in the regulatory basis which calculates the contributor’s future pension and could be considered a tax. The next course will cost around 350 million with this fee.
Ultimately, the new solidarity quota will be used to soften the financial blow of mass retirements of the baby boom generationbut this has no effect on the pensions of workers who will be affected by the regulations in Spain. The Tax Agency estimates that there are nearly 1.2 million payrolls exceeding 60,000 euros, according to data from the tax declaration on salary collections.
How it has been applied since January
The new solidarity quota will apply to the salary scale which exceeds the maximum base planned by the middle of the century. This limit is established on the basis of the variation in annual inflation increased by an additional 1.2 points after the last reform. According to forecasts from the Bank of Spain, the CPI will increase by 2.9% on average in 2024.
Thus, the increase that would be applied to the current maximum base is 4,720.50 euros per month or 56,646 per year. would be 4.1% and This would be around 4,747 euros per month or 58,968 per year. From this section, the supplement will be applied with the corresponding costs according to the section:
- An additional contribution of 0.92% for the part of the salary between the maximum base and 10% above this maximum base. In 2025, this first tranche will reach just under 65,000 euros.
- 1% for the salary scale going from the additional 10% of the maximum base to 50%. In 2025, this second tranche will be between nearly 65,000 euros and 88,000 euros.
- 1.17% for the remuneration bracket beyond the additional 50% of the maximum base. In 2025, salaries starting from 88,000 euros will be in this section.
The distribution of the contribution rate which will begin next year will maintain the same proportion as the usual rates for common contingencies, those which finance pensions: For every point the worker pays, the company pays five. “For example, in 2045, in the case of the second tranche (additional contribution of 6%), 5% will be paid by the company and 1% by the worker,” explains BBVA My Retirement.
The General Treasury of Social Security (TGSS) will be responsible for calculating the corresponding contributions, applying the contribution rate to both the company and the worker, to dispel doubts. This will be reflected in the contribution payment receipt, but not in the nominative list of workers.
This solidarity contribution will be intended for workers whose income exceeds the maximum contribution base, namely: employees located in the General Regime, in the Special Sea Regime and self-employed workers also located in the Sea Regime. self-employed workers are excluded from overcharging.
The impact on each payroll, with examples
More than a million workers will see the impact on their payroll at the end of the month. What the solidarity contribution will subtract from the payroll ranges from a few euros to several hundred.
Those in the lowest bracket and will pay 0.92% of their gross salary – so far exempt from fees – will pay 9.5 euros if the salary is 60,000 euros per year or 55.5 euros if the The example is calculated with a payroll of 65,000 euros.
Those who earn in the intermediate bracket will have their salary taxed at 1% for the pension fund and will pay an additional contribution of 160 euros or 260 euros, taking as an example salaries of 65,000 or 75,000 euros per year.
The highest salary percentile in Spain will pay 1.17% for their gross payroll. A salary of 100,000 euros will cover this percentage for a salary scale above 40,000 euros, for a total of 480 euros additional. A payroll of 125,000 euros will do this for a salary bracket of 66,000 euros which was previously exempt from contributions and which will now pay 772 euros annually.
There’s another climb waiting
The start of 2025 will also see an increase in the surcharge paid by all employees to fill the pension “piggy bank” and perpetuate the system. The latest pension reform created the Intergenerational Equity Mechanism (MEI), an increase which now amounts to 0.8% of salary from January 1 and will reach at least 1.2% by the end of the decade. The rate will remain at 29.1% of salary.
This tax will apply to all payrolls and is intended to feed the pension piggy bank with a planned collection of 130 billion euros by the middle of the century to cope with the expected high expenses that will result from the massive departure of the “baby boom”.
