More than 700,000 workers will contribute five extra points in a decade due to the pension reform

The Bank of Spain has analyzed the impact of the recently approved increase in social contributions on the pension reform devised by the Minister for Inclusion, Social Security and Migration, José Luis Escrivá. The increase will be effective through three tools, the Intergenerational Equity Mechanismthe increase in the maximum contribution bases and a solidarity fee on the salary bracket that exceeds that limit provided. Specifically, more than 700,000 workers with salaries that already exceed 60,000 euros per year -according to data from the Tax Agency- face a increase in the effective contribution rate of five points within a decade.

The supervisor certifies that the increase in the effective rate of social contributions will vary between 0.8 points and 1.6 points in 2025. By mid-century, once the measures are fully deployed, the increase in the effective rate will exceed 10 points for the tranches from 70,000 to 100,000 euros per year. The type of contribution that modifies the pension reform are the common contingencieswhich currently tax 28.3% of gross salary.

The institution led by Pablo Hernández de Cos leaves in the air the impact on different aspects of the economy due to the time horizon and the reaction of the labor market. “There is great uncertainty about the precise effect of the regulatory changes analyzed. This lack of certainty responds, to a large extent, to the fact that the quantification horizon is very broad, so that the materialization of changes in the labor market and the very reaction of the agents will force us to reassess its scope in the future”.

Extra income worth 0.9% of GDP

This latest reform, as the central bank also concludes, aims to strengthen the system’s income. Sustainability, therefore, is essentially charged on assetsespecially on middle-aged workers, with higher qualifications and on large companies.

“The increase in social contributions approved in 2023 will have an unequal effect along the distribution of wages. In particular, the increase in effective contribution rates will be higher for high wages”, explains the Bank of Spain. According to the Continuous Sample of Working Lives, the Bank of Spain explains that the number of people whose contribution base was in 2021 the legal maximum was about 1.3 million, 6.8% of all Social Security affiliates.

The main measure that will improve Social Security income is the surcharge that applies from 2023 to all payrolls, the MEI. It starts at 0.6%, and will reach at least 1.2% from 2032 until the middle of the century. This tool is the main bulk of collection that will add 0.5% of GDP in the middle of the century. Adding the top of the maximum bases and the solidarity quota, the Bank of Spain expects that the contributions improve income by up to 0.9% of GDP by mid-centuryalso coinciding with the higher expected spending.

However, the Bank of Spain, AIReF and Fedea somewhat lower the optimism of the Ministry Directed by José Luis Escrivá. In the forecasts that the Government launches to Brussels, they project an improvement in income worth 1.1 points, two tenths more than what was projected by Hernández de Cos.