Spain planning Social Security contribution reform for the self-employed

Spain’s Social Security system could be about to change. Negotiations underway with employer and worker representatives may lead to a new multi-tiered system of contributions for the self-employed based on annual revenue, as well as new benefit reduction rates for early retirement.

Paying contributions based on real income, rather than a fixed monthly amount regardless of how much they make, has been a longstanding demand by some leading freelancer associations, although not everyone agrees.

Social Security Minister José Luis Escrivá has made the proposal to the main labor unions UGT and CC OO as well as to the employer groups CEOE and Cepyme, the contents of which are detailed in a 14-page document that EL PAÍS has seen. Although a deal has been described as “imminent,” ministry sources cautioned that there are still several options on the table, and that this may not be the definitive text.

The document also details new benefit reduction rates for early retirement: there would be a reduction of up to 21% for people who stop working 24 months before their full retirement age, and 2.81% for those who stop one month early.

Also under the new rules, there would be 13 contribution brackets for the self-employed, who would pay a monthly amount anywhere between a minimum of €90 up to a maximum of €1,220, depending on their income.

There are substantial changes to the way the self-employed pay into the system. Right now, with a few exceptions, it is possible to choose one’s contribution base, which in turn determines the monthly fee to pay, regardless of actual income. There is a minimum payment to make even for the lowest earners.

Right now, 85% of Spain’s self-employed have opted for the lowest available contribution base, which is €944. This amounts to a monthly payment of around €250 or more for most freelancers. By comparison, the lowest base for salaried employees is €1,108, although the employer covers much of that contribution.

Instead, Escrivá is proposing the creation of 13 contribution brackets based on the self-employed worker’s income. The new system would be introduced next year, although its effects would not be felt until 2023, and there would be a transition period spanning nine years.

Under this system, the self-employed would choose their contribution base according to their estimated revenue, and they could alter this up to six times a year. In the event of a mismatch between contributions and real revenue at the end of the year, contributors would either make an additional payment or request a refund.

Pensions

The ministry’s proposal also reviews the Spanish pension system. In line with union demands, it talks about linking pension upgrades to price index evolution, instead of to the Social Security system’s financial situation. The document also seeks ways to push the real retirement age, now at 64.4 years, closer to the legal full retirement age, which is between 65 and 66 years in 2021. One way is by introducing tougher benefit reductions for people who retire early.

Under the scheme, a worker who paid into the system for under 38.5 years and wanted to retire two years ahead of time would get a 21% reduction on his or her benefits, compared with 16% under the current system. The rate would shrink with every month that early retirement is delayed, instead of quarterly as now. For those who paid into the system for a longer period of time than 38.5 years, the reductions would be smaller.

As for non-voluntary early retirement caused by a collective layoff (ERE), company bankruptcy or for what is known as objective dismissals, there are also new reduction rates.

English version by Susana Urra.