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Government improves offer in pension reform

Annual appreciation in times of bonanza could be raised to 0.5 percent plus inflation

Manuel V. Gómez

The government has improved its offer for the annual increase in state pensions in times of strong economic growth but the proposal failed to find favor with the opposition, which on Wednesday voted against the reform of the pension system in Congress.

However, the PP availed itself of its absolute majority in the lower house to approve the reform as originally presented.

Labor Minister Fátima Báñez said Wednesday the amendments the government proposed will be dealt with by the Senate.

The ruling conservative Popular Party administration is now planning to revise pensions upward during times of bonanza to 0.5 percent plus the annual inflation rate. The original offer was for a maximum hike of 0.25 percent plus inflation. The minimum rise would remain at 0.25 percent in absolute terms.

Currently, pensions are revised upward according to the government’s projected inflation rate. If the actual rate is higher than the target one, then pensioners are compensated for the accompanying loss of purchasing power. However, that did not occur last year when the government said that reducing the fiscal deficit took precedence over compensating pensioners.

The opposition’s objection to the reform is that it will cause pensioners to lose purchasing power. The government is aiming to save 33 billion euros in pension benefits in the period 2014-2022. With an average annual inflation rate of 2 percent, the accumulated loss for someone on average pension in that period would be some 1,500 euros a year.

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