Spain is hoping to lure workers into postponing their retirement with cheques of up to €12,000 a year as the country comes under pressure from the EU to reduce debt in the public pension system.
The government intends to extend the average retirement age from the present 64.6 years to 65 or 66 years depending on the career and to pay workers who delay retirement.
The initiative is part of controversial reforms proposed by José Luis Escrivá, the social security minister in the Socialist-led coalition government, which would undo much of a previous overhaul by a conservative government that imposed pension cuts.
Spain offers one of Europe’s most generous public pensions as a percentage of lifetime earnings and spends about 12 per cent of annual economic output on retirement payments. Social security had a record deficit in 2020 of €20 billion or 1.8 per cent of GDP.
Experts say that to make Spain’s pension plan sustainable, the government must raise the retirement age and cut pensions. The reform is a European Commission requirement for accessing massive EU recovery funds.
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The conservative Popular Party scrapped raising pensions with inflation, which has kept payments practically frozen since 2013. The present government, led by Pedro Sánchez, the prime minister, proposes to bring the rises back.
The plan is subject to negotiation with unions and has yet to be formally approved by the cabinet and then the fragmented parliament. It would not come into force until 2022. The loss of purchasing power of Spain’s 9.8 million pensioners provoked strong protests under previous governments.
The government hopes to set up a fund run by private investment companies to offer Spaniards an affordable way to supplement their public pension, but the system will require workers to opt in rather than being automatically enrolled. “It’s a good idea, but if they say it’s not mandatory or doesn’t include at least auto-enrolment, it won’t resolve anything,” Concepción Patxot Cardoner, a University of Barcelona professor, told Bloomberg.
