Reform of the Spanish pension system

Agreement has been reached among political parties on the main recommendations for the reform of the Spanish public pension system.

On 2 October 2003 all the political parties currently represented in the Spanish Parliament approved a set of recommendations (pdf file) on pension reform that were made to the government and social partners. Only the Izquierda Unida (United Left) party abstained. These recommendations are an updating of the so-called ‘ Pacto de Toledo’ (pdf file) , an agreement signed in 1995 by the major political parties to ensure the future feasibility and sustainability of the Spanish public pension system.

Eight of the 22 recommendations in the agreement are new, while the remaining 14 were previously included in the Toledo Agreement, but have been revised and updated by the Non-Permanent Commission of the Pact. There is an additional recommendation to monitor and assess the agreement within five years.

Contribution years

One of the key new recommendations concerns the need to increase the number of contribution years that are taken into account when calculating the corresponding retirement pension benefit. Currently, this benefit is calculated according to the number of contributions made by workers and employers during the 15 years prior to retirement. Some parties proposed extending this period to the whole working life but, so far, no consensus has been reached in this regard.

Working conditions

The following issues concerning working conditions were highlighted in the agreement:

• Adequate cover has to be provided for those in ‘emerging’ work patterns (Employment in Europe 2003 report (pdf file) - see p.216 for Key employment indicators for Spain) . Part-time employment in Spain has grown from 4.7% of total employment in 1991 to 7.9% in 2002, while temporary work represented 31% of total employment in 2002, the highest rate in the European Union.

• There is a need to ensure a gender balance in the Spanish labour market, and to promote gender equality and the reconciliation of working and family life. The female employment rate in Spain was 44.1% in 2002, compared with 72.6% among men. The recommendations suggest that time off to take care of dependants (children, elderly, etc.) should be taken into account when calculating the corresponding benefits.

• Recommendations are made to introduce special measures to tackle all forms of discrimination against people with disabilities (667,000 employed in Spain in 2002 or 4.1% of the total working population).

• The situation for immigrant workers should be improved, granting them the rights and obligations generally available in the Spanish pension system.

• It should be possible to encourage extending working life in a voluntary manner through flexible and gradual retirement options, so that the average retirement age (63 years) is brought closer to the legal one (65 years). In 2002, 259,100 retired pensioners in Spain were under 65 years of age (5.6% of all old-age pensioners). The report recommends not financing the premature exit of workers from the labour market through public funds.

Implementation

The agreed recommendations on pension reform do not yet put forward any specific actions on these issues. They signal the need to carry out research in order to better identify suitable mechanisms for inclusion in the regulatory framework.

Further development of these recommendations has been postponed until after the next general election, due to be held in March 2004. Therefore, it is assumed that negotiations with the social partners, as well as implementation of the final set of agreed measures, will take place under the next government.