The Big Pension Gap
Inflation continues unabated and the state government maintains its commitment to update pensions in line with the CPI, a fact that clashes directly with the European Commission’s demand for control of the budget, currently at a maximum of 3.3%, and with a new factor that could be decisive: the planned retirement of 50% of the civil service in 2023.
The inflationary scenario we have been experiencing for months has placed the economy of most EU countries in a possible stagflation phase that could inevitably lead to an imminent recession which, so far, has been contained. The European Commission suggests that the solution lies in controlling the budget: keeping the public deficit below 5% in 2023, and 3.9% in 2024, and ensuring that spending does not increase by more than 3.3%, among other measures.
We are in Spain, where this control of public spending cannot exceed 3.3%, leaving the country with a margin of some 20 billion for public administration spending. An insufficient figure that will go almost entirely to cover pensions. In addition to the high level of spending on pensions, there are two key factors: the government’s intention to update pensions in line with the CPI and the expected increase in the number of retired people next year.
Pensions grow at the rate of the CPI
This is the scenario envisaged by the Spanish government, with an expected increase in pensions in line with the growth in inflation, so as not to impoverish this large part of society. This is quite a challenge, bearing in mind that in the event of ending the year with a percentage of 10.8%, as in July, the amount earmarked for pensions would also have to grow by this margin. With this measure, the planned outlay for pensions, which account for a third of total government spending, could amount to 17 billion euros.
This is a high cost that could skyrocket if the number of pensioners grows, which today stands at around 8.99 million people, according to data from the Ministry of Labour and Social Security for December 2021. Spain already suffered a similar situation in 2020, during the pandemic, when more than 10,500 civil servants asked for voluntary early retirement in the face of the uncertainty caused by the transfer of the management of pensions from the Treasury to the Social Security. This led to a 22% increase in requests compared to previous years.
50% of civil servants plan to retire by 2023
The current situation foresees that in 2023 we may once again find ourselves in a scenario with a high percentage of civil servants planning to take early retirement. The retirement age for civil servants is 65 for those who retired before 2011 and 66 for those who joined the civil service after 2011. Like all other employees, they have to have paid contributions for 15 years in order to receive a benefit. There is another case, more worrying for the state, which is early retirement, which is available to the passive classes, and which allows civil servants to take early retirement from the age of 60, provided they have contributed for a minimum of 30 years.
The average benefit for civil servants is usually 2,300 euros, according to the monthly pension statistics compiled by the Ministry of Inclusion, Social Security and Migration, 64% higher than that received by retirees in the General Social Security Scheme, also in the first quarter of the year, at 1,400 euros on average.
At present, the civil service workforce totals some 2.6 million people, of whom more than one million are between 50 and 59 years old, a fact that is expected to precipitate an increase in the flow of retirements in the coming years. In an attempt to curb this scenario, the Ministry of Social Security will study the implementation of incentives for civil servants to extend their working lives beyond the age of 60. The proposal of CSIF, the largest public sector union, is for a 5% annual cumulative incentive.
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