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Date Published: 16/11/2021

ARCHIVED - Pension contributions to increase in Spain in 2023

ARCHIVED ARTICLE

The net pay of employees will decrease by between 1 and 2.50 euros in Spain

<span style='color:#780948'>ARCHIVED</span> - Pension contributions to increase in Spain in 2023

Big changes are afoot for the self-employed and contract workers in Spain this week as the Government and unions have come to an agreement on Tuesday November 16 on the final terms of the Intergenerational Equality Mechanism (MEI), designed to strengthen the entire pension system. What it means, in a nutshell, is that workers will pay higher monthly contributions that will enhance payments at retirement age.

How much will pension contributions go up?

Ultimately, contributions will increase by 0.5% for companies and 0.1% for staff. Currently, companies are required to allocate 23.6% of the contribution base while workers are allocated 4.7%. Under the new regime, business contributions will be set at 24.1% while staff will have to pay 4.8%.

How will this affect gross pay?

This estimation is probably the most straightforward to calculate: for employed persons, the new system will involve deducting 0.1% of their contribution base from their salary. As an example, a staff member earning at the minimum taxable rate of 1,050 euros per month would be looking at an additional pension contribution of 1.05 euros, while the company would have to pay an additional 5.35 euros per month for that worker.

What is the impact on net salary?

This figure is a little more complicated to arrive at, as it depends on a whole host of factors, such as family and work deductions, and in general the net impact on payroll will not be known until each taxpayer’s income statement arrives.

However, for the vast majority of staff, it will amount to the equivalent of between 1 and 2.50 euros net per month.

For the average worker, with a monthly salary of about 2,000 gross euros, the net payroll reduction will be approximately 1.5 euros.

When do the increases in pension contributions come into effect?

The new pension contribution scheme won’t be applied in Spain until 2023. From then until 2032, the amount detailed above will be set, but from 2033 onwards, contributions will have to be reviewed every three years if the amount payable deviates from the estimations set by the European Commission.

If there is a large discrepancy in the predictions, a fund is available to cover the increase or the government will seek permission to lower contributions once again.

How much money will Spain make with the increase?

The Minister of Social Security confirmed during a press conference after the MEI agreement meeting that the Government’s objective is to collect close to 50 billion euros in 10 years (adding contributions and interests) with which it will pay for pensions already guaranteed between 2032 and 2050.

Why are businesses opposing the increase?

As was the case with a recent negotiation to increase the minimum wage in Spain, business owners argue that the government’s proposal to up pension contributions will put undue pressure on employers and hinder the recovery of the economy.

“Increasing social contributions and placing the greater burden on companies has negative effects on employment and goes in the opposite direction to what the public pension system needs. The growth of employment is the main guarantee of sustainability of the pension system”, representatives insisted in a statement this week.

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