Escrivá figures at 42,000 million the savings that the pension piggy bank will accumulate

The Minister of Inclusion and Social Security, Jose Luis Escrivá, expects to endow the pension box with 42,000 million in 2032, after applying for 10 years the rise of 0.6 points in social contributions agreed with the unions, with the rejection of the employer. Escrivá, appeared this Thursday at the Toledo Pact Commission to explain the scope of the new Intergenerational Equity Mechanism (MEI) that will replace the Sustainability Factor approved in its day by the Government of Mariano Rajoy to cut pensions and that was never applied.

According to the latest government calculations, this surcharge would allow an additional collection each year equivalent to two tenths of GDP (about 2,800 million in 2023). In addition, according to the estimates presented by Escrivá in the Toledo Pact Commission, these 2,800 million per year would allow to accumulate a fund of 42,000 million after ten years if an average annual return of 3.5% is achieved for the amounts saved each year. This saving is the asset that the Government has to face the higher spending on retirement pensions of the ‘baby boomers’, which will reach a maximum peak in 2040.

An average annual return of 3.5%

As explained by the minister Jose Luis Escrivá, the return of 3.5% applied in the calculations is that obtained by the Reserve Fund since its creation in 2000. However, the current level of interest rates -with the official price of money at 0% since 2016 – it is much lower than in the first 15 years of the century. The average rate of Spanish public debt (preferred investment asset for the Reserve Fund) that is in circulation has gone from 5.37% in 2002 to 1.61% today, according to Treasury data.

In any case, for Minister Escrivá, a lower return would not prevent accumulating a significant amount of savings. According to the data provided by the minister in the Toledo Pact Commission, if the average profitability were 2.5% (instead of 3.5%), the amount accumulated in the piggy bank in 2032 would be 40,000 million euros. During the negotiation with the social agents, in recent weeks there was talk of calculations that resulted in a saving of 50,000 million in the Reserve Fund after 10 years.

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The new mechanism to guarantee the sustainability of pensions will be consulted with the European Commission. “If we generate a (savings) cushion, and this is what we are going to agree with the European authorities, and that cushion reaches this magnitude in the next ten years (about 42,000 million), the pension system as a whole, with all the elements that accompany it, will be oriented in a clear way towards its sustainability, “said the minister in the Toledo Pact Commission.

Most of the parliamentary groups other than those that support the Government -PSOE and United We Can- questioned the capacity of the new Intergenerational Equity Mechanism (MEI) proposed by the Government to fill the pension moneybox (Reserve Fund) in ten years, according to preliminary government calculations. In the Toledo Pact Commission, the spokesmen of PP, Cs, Vox and ERC, they considered very optimistic the calculations of savings that the Government plans to accumulate in the Reserve Fund from the rise in contributions of 0.6 points agreed with the unions.