Spain: Seven key takeaways on the pension reform

The most important items of new legislation and elements for companies in Royal Decree-Law 2/2023 of March 16 on urgent measures to broaden the rights of pensioners, reduce the gender gap and establish a new framework for the sustainability of the public pensions system are listed below:

1. Maximum contribution bases

It establishes that the stipulated cap on contribution bases in each of the social security regimes will be updated annually in the General State Budget Law by a percentage equal to the figure that will be determined for the increase in contributory pensions.

2. Additional solidarity contribution 

Moreover, an additional solidarity contribution is introduced for employees whose salaries are higher than the maximum contribution bases. Namely, the solidarity contribution will be the result of multiplying (i) by 5.5% the portion of their compensation that falls between the maximum contribution base and the figure that is 10% higher than that base, (ii) by 6% the portion of their compensation that falls between the figure that is 10% higher than the maximum contribution base and 50%, and (iii) by 7% the portion of compensation above that percentage.

The additional solidarity contribution comes into force on January 1, 2025 and will be increased from 2025 until 2045, which is when the final rate will be achieved.

3. Special-purpose contribution under the intergenerational fairness mechanism

To preserve the balance among generations and strengthen the sustainability of the social security system in the long term, an intergenerational fairness mechanism is introduced consisting of a special-purpose contribution applicable across all regimes and in all cases where contributions are made in respect of the retirement contingency. This contribution will not be computable for the purposes of benefits and will feed the social security reserve fund. Its amount will be equal to 1.2% (1% for the employer and 0.2% for the worker).

The special-purpose contribution under the intergenerational fairness mechanism will be in effect between January 1, 2023 and December 31, 2050, according to a sliding scale provided in the law.

In 2023 it will be 0.6% (0.5% for the employer and 0.1% for the worker) and there will be staggered increases until 2029 according to the sliding scale set out in the law.

4. Calculation of retirement pensions

The computation base for retirement pensions will be calculated by dividing by 378 the sum of the interested party’s contribution bases over the 324 months preceding the month prior to the event triggering entitlement, obtained as determined in the law.

The 348 consecutive months immediately preceding the month before the triggering event will be selected and out of those 348 bases calculated by reference to the provisions in the law the authorities will choose at their initiative the 324 highest contribution bases.

These changes relating to the calculation method for retirement pensions will come into force on January 1, 2026, although until January 1, 2037, they will be phased in gradually as determined in the transitional provision provided in the law.

Additionally, another transitional regime is provided specifically for cases in which earlier legislation applies in relation to entitlement to receive a retirement pension (transitional provision four of the General Social Security Law) until 2044.

5. Computation of contribution periods

For the purpose of evidencing the necessary contribution periods to be entitled to receive retirement, permanent incapacity, death and survival, and temporary incapacity (sickness/accident) benefits, and benefits for giving birth and caring for a minor, the various periods in which a worker has been registered for social security purposes under a part-time contract will be taken into account, regardless of the length of the worker’s working hours performed under each of them.

6. Temporary incapacity (sickness/accident) benefits

Changes are also introduced in relation to temporary incapacity (sickness/accident) processes. The main new element is that, after the worker has used up a 365 day period, the absence of a doctor’s report confirming that the worker is fit for work, will mean that the worker is on extended temporary incapacity (sickness/accident) leave.

7. Social security system for students on work experience placements or academic placements

Rules are provided on inclusion in the social security system of students on work experience or external academic placements which are part of paid or unpaid training programs. This new legislation will come into force on October 1, 2023.