SOCIAL SECURITY

Government’s reforms to cut pension spending by €33 billion

Purchasing power of retirees would be hit throughout 10-year period as changes are phased in

The reforms of the state pension system approved last Friday by the government aim to generate savings of 32.939 billion euros in the period 2014-2024, according to notes accompanying the draft amendments sent to the government’s Economic and Social Council (CES) consultative body.

According to the figures included in the notes and the draft bill to which EL PAÍS has had access, pensioners look set to lose purchasing power at least throughout that period.

The government is proposing an amendment to the way pensions are revalued annually. Currently, the method is linked to the consumer price index and compensates retirees for the loss of purchasing power as a result of the actual inflation rate exceeding the government’s target rate.

The administration is proposing that pensions now be raised by a minimum of 0.25 percent a year and a maximum of inflation plus 0.25 percent, with the new system to take effect at the start of next year.

It also plans to introduce a new parameter that takes into consideration factors such as the official retirement age, the number of years of Social Security contributions and the number of years on which pension entitlements are calculated, as well as life expectancy rates, to determine levels of benefits that ensure the sustainability of the pension system. This innovation is due to take effect in 2019.

The savings the government plans to generate through these amendments are expected to increase gradually over the period in question. The first year in operation will shave an estimated 809 million euros off government outlays in pensions, which are projected at 10 billion euros. The following year, savings will rise to 1.637 billion euros, increasing eventually to 5.234 billion euros in 2020 when the figure is expected to stabilize.

Practically all of these savings will come from the new system of calculating annual revisions to pension benefits. The sustainability factor is not expected to impact the state pension system’s finances until 2030, when savings of 0.1 percent of GDP, or some one billion euros are projected.

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