The public pension system is much more than retirement benefits. In fact, almost one in three euros is allocated to other types of pensions (widowhood, orphanhood, or disabilities, among others). However, most of the system’s reforms focus on the collection and access to retirement pensions. In this context, Octavio Granado, former Secretary of State for Social Security in previous socialist governments of José Luis Rodríguez Zapatero and Pedro Sánchez, has prepared a document of proposals to completely remake the regulatory law of the system, which addresses several changes to those other benefits. One of the most relevant affects the widowhood pension.
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In his work , prepared for Fedea, the potentially most controversial proposal would affect widowhood pensions, which account for more than 15% of total expenditure (over 28 billion euros annually). These benefits have historically been the subject of numerous reform proposals that have ultimately never materialized. Granado himself, during his terms, considered some of these changes that never saw the light. Now he proposes a mixed approach: that widowhood pensions be partially incompatible with work income, but, as compensation for this cut, he adds that the savings achieved should be used so that widowers and widows, once retired, can receive both their retirement pension and widowhood pension simultaneously without the current cap imposed by receiving a maximum pension. Likewise, he suggests that these benefits should also not be incompatible with the minimum supplements received by pensions that do not reach the legal minimum benefit.
Under the heading titled The widowhood pension, generous and with an arbitrary incompatibility policy, Granado justifies a reform of this benefit because “the compatibility [with wage income] that originally intended to encourage the small number of working women to increase with widows who would not be penalized for supplementing work or pension, now forces the system to deliver benefits to people who multiply by five, ten, or a hundred the average income of Spaniards.” This is the tired example used by opponents of the current regulation: that the president or chairperson of an Ibex company has the right to receive their corresponding widowhood pension, regardless of their income.
At this point, the former Secretary of State recalls that already in 2007, at the suggestion of the CEOE employers’ association, “the Social Security Administration seriously studied, in view of the 2007 reform, establishing a regime of incompatibilities for the widowhood pension similar to that of Germany, in which the amount of the pension is reduced in proportion to the existence of other economic earnings.” However, as on other occasions, this reform did not go beyond a theoretical formulation on paper.
Now Granado resumes these suggestions. The first is to establish a regime of incompatibilities between the enjoyment of the widowhood pension and the work income or economic activity that the widowed person has while active. This incompatibility should occur, in his opinion, “in the proportion determined, following the examples of the EU pension systems,” the document indicates.
To compensate for the savings that would result from this measure, he proposes several improvements. The first is that receiving a retirement or disability pension, or the perception of minimum supplements, does not completely cancel the receipt of the widowhood pension. This currently happens because there is the paradox that a working widower can add his widowhood pension regardless of his salary. But when he becomes a pensioner (disability or retirement), adding all the pensions he is entitled to, he can only receive the amount of the maximum pension. This, Granado insists, undermines the contributory nature of the system and prevents income improvements for surviving spouses. Likewise, now the widowhood pension counts as income to cancel the minimum supplement to which people who have contributed but not enough to receive the system’s minimum pension are entitled.
The second improvement Granado demands with the savings that a system of incompatibilities for the widowhood pension would entail is “a defined increase in orphanhood benefits and a corresponding decrease in widowhood benefits.”
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Finally, he proposes for those couples who wish to continue maintaining the income improvements that the current system entails (without future incompatibilities during the active period of the widower or widow) “the gradual establishment of an insurance regime in the same proportion as these improvements disappear.”
Changes in contributions
Apart from the widowhood pension, the new General Social Security Law, which Granado considers outdated, should include, in his opinion, changes in the ways of contributing. Specifically, he talks about two situations. First, he proposes a negotiation to rebalance the over-contribution that the Intergenerational Equity Mechanism entails. This higher contribution intended to finance the impact of massive retirements from the baby boom generation currently maintains the historical proportion of contributions (for every six parts paid by the employer, the worker pays one). In this regard, he opens the debate about renegotiating this proportion.
A second proposed change in the distribution of contributions affects companies that sign agreements with supplements to improve temporary disability benefits. In these cases, Granado proposes a higher contribution for both the employer and the worker, provided it is demonstrated that these agreements disproportionately increase the cost of disability leaves compared to comparable cases.
To this last proposal, he adds others that would entail a significant reform of temporary disability benefits, including unification in the treatment of leaves regardless of their origin (accident, occupational or common illness). He also supports gradual reintegration, allowing partial compatibility of the benefit and salary during the recovery and return-to-work process. And, in the case of mental health, he proposes that, from a certain duration of these leaves (to be determined), rehabilitation processes should be mandatory, arranging care services with the Social Security collaborating mutual societies.
‘Purchase’ of contributions and early retirements
Likewise, the former Social Security official warns about “the expansive tendency of the system to integrate groups with ad hoc rules that break the proportionality between contribution and benefit.” He refers, for example, to the recently approved pathway for lawyers, solicitors, and mutualist architects to purchase contribution years to receive higher retirement benefits than those their respective mutual societies would provide. Or to cases of the Catholic clergy (affiliated between 1978-1981 without prior contributions); of students in internships (a progressively required contribution since 2011); or of professional athletes, where he compares the unequal treatment between footballers (who will recover non-contributed years charged to their own mutual society) and other athletes (charged to public funds managed by the Higher Sports Council). Faced with all these situations, Granado demands that the future Social Security law regulate these contributions retroactively “with explicit equity criteria regarding those who did contribute on time.” That is, benefiting the latter over the former.
He also issues another warning regarding the growing demand for reducing coefficients for retirement age in arduous professions (just requested by professional drivers, chambermaids, home help workers, or cabin crew, among others). In these cases, he advocates for a “without delay” application of a surcharge contribution to all professions that currently maintain these reducing coefficients. Additionally, he demands that in all activities with such early retirement without pension penalty, a “mandatory process” of professional retraining be carried out in the ten years prior to early retirement towards less arduous occupations within the company or public administration.
