The Spanish government agreed to raise the retirement age in a renewed bid to restore investor confidence after a 20 billion-euro ($27 billion) plan to shore up savings banks failed to tame the nation’s borrowing costs.
Four months after Spanish workers disrupted transport and broadcasts in a general strike aimed partly at the pension plan, the Cabinet approved a bill to increase the retirement age to 67 from 65, Deputy Prime Minister Alfredo Perez Rubalcaba told reporters in Madrid today. The government, unions and employers reached an agreement earlier today after late-night talks on the bill and changes to wage-bargaining.
Spain’s worst economic crisis in six decades and a jobless rate of 20 percent have quickened the pace at which the social- security system is eating into its surplus. Europe’s debt crisis has also added urgency to the overhaul that comes as lenders including La Caixa, the nation’s second-biggest savings bank, reorganize in response to new capital requirements.
“It will be hard to convince everybody with something that has such a long horizon as the pension plan,” Olaf Penninga, who helps manage 147 billion euros at Robeco Group in Rotterdam, said before the government announced the measure. “It’s good they’re doing it but it’s not the silver bullet,” he said. “For now the pressure will remain on Spain.”
Spanish Labor Minister Valeriano Gomez told reporters today that the pension bill doesn’t aim to cut retirement benefits and its objective is to “stabilize” spending. The government will revise the parameters of the pension system every five years after 2027 to reflect changes in life expectancy, according to a statement from his ministry.
Ten-year Spanish bonds yielded 230 basis points more than comparable German securities today, up from 229 yesterday and 209 on Jan. 24 when Finance Minister Elena Salgado unveiled the savings-bank plan. The plan features a minimum core-capital requirement of 8 percent that rises to as much as 10 percent for lenders without private investors.
Responding to the new rules, La Caixa said late yesterday it will hand its banking business over to its listed investment unit Criteria CaixaCorp SA, and turn that company into a commercial bank. The shares rose 21 percent at 1 p.m. in Madrid.
The government, fighting to slash the euro region’s third- largest budget deficit to 6 percent of gross domestic product this year from around 9 percent in 2010, had pledged to approve the pension bill today. Salgado said talks with unions can continue as the legislation goes through parliament, where the minority government needs support from smaller parties.
“The fundamental elements of our proposal will be in the draft that’s presented to the Cabinet,” Salgado said in an interview on TVE on Jan. 26. “But it’s a law so it has to go through parliament and in that process it will be possible of course to make small changes.”
The bill allows workers who have paid into the social- security system for 38 1/2 years to retire at 65 years with a full pension rather than the new limit of 67 years, Gomez said. Gomez said the government will also increase the number of working years used to calculate pension benefits to 25 years from 15 years, doing so gradually from 2013 to 2023.
Spain spent 95.7 billion euros on contributions-based pensions in 2010, almost 10 percent of GDP. Forty percent of this year’s spending will go to social security as the nation grapples with Europe’s highest jobless rate, according to the budget law. The unemployment rate rose to 20.3 percent in the fourth-quarter, the National Statistics Institute said today.
Last year, the difference between employed workers’ social- security contributions and contribution-based pension benefits turned negative, according to data from the Labor Ministry, even as the system posted a surplus of 0.2 percent of GDP, helped by interest earned on a 60 billion-euro reserve fund.
That shortfall emerged five years earlier than expected due to job losses and demographic factors, said Javier Diaz-Gimenez, a professor at IESE Business School who has written on pensions. Without changes, the debt needed to fund the pension deficit would amount to 190 percent of GDP by 2050, he estimates.
“Small, gradual changes in the Spanish system do not solve the problem,” he said by phone. “It’ll be disappointing because they won’t announce a fundamental reform.”
Prime Minister Jose Luis Rodriguez Zapatero, who once pledged to keep raising pensions, has made a policy U-turn since the Greek debt crisis prompted a surge in borrowing costs. Voters and traditional union allies have been alienated by cuts to public wages and social benefits, changes to labor rules and measures to support banks. The agreement reached with unions was the first since the Sept. 29 general strike.
The Socialists, facing regional and local elections in May, would win 18 percent of the vote if general elections were held now, with the opposition People’s Party on 49 percent, according to a poll in El Mundo on Jan. 2. Zapatero will announce this fall that he won’t seek re-election in March 2012, La Vanguardia newspaper reported yesterday.
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