Pension hikes should no longer be linked to inflation, experts recommend

A group of experts commissioned by the Popular Party (PP) administration has recommended in a report that pensions should lose their purchasing power in times of crisis, or even be temporarily frozen during a certain period until the economy recovers. The draft report, published by EL PAÍS on Friday, also calls on the government to draft a new law that enshrines this new restructuring.

Once the government obtains the draft, it will present it to the members of the opposition parties — through the Toledo Pact — in an effort to seek a consensus before it goes to a congressional commission that is studying pension reform. Unions and business groups will also be invited to give their opinions over the proposals.

The final reform, and a date for when it will go into effect, must be presented to the European Commission by September — a deadline the Rajoy government has committed itself to. “The committee is in favor of putting it into action as early as possible, within the 2014-2019 period,” the draft states.

Deputy Prime Minister Soraya Sáenz de Santamaría on Friday declined to comment on the experts’ recommendations until the government receives the draft document. “As of yet, we don’t have any report and I cannot confirm if it will be delivered today or Monday,” she said. Finally, the presentation was set for Friday afternoon.

“All we can do at this moment is thank the committee for its work,” she added before stating that the government will honor what any agreements brokered through Toledo Pact cross-party commission.

More than a month ago, the government commissioned about a dozen experts and scholars to design a plan on the sustainability of the nation’s state pension system. It came up with a two-fold mechanism to increase savings within the nation’s Social Security system.

First, the plan proposes to decouple the current pension system from inflation, instead basing periodic hikes on the actual health of the economy. At the same time, the committee recommends that initial payouts for recently retired citizens should be based on their life expectancy at the time they retire.

The sustainability factor is an adjustment and cost-containment mechanism in the public pension system that was touched on during the last reform, which was passed in 2011 and provides for the gradual increase of the retirement age to 67 by 2027. The working group examined how pensions operate in several European countries.

But the major proposed change in the draft reform, according to the document obtained by EL PAÍS, is that once the new restructuring plan is implemented it will affect both current and future pensioners. In other words, if the proposal is approved in the way it is written, it will mean that for the first time a reform of this type will apply to those who are already retired at the time it becomes law.

The proposal does not recommend delaying further the retirement age of 67 beyond 2027.