Toledo Pact

The Toledo Pact affects pensions

How many times have we heard about the Toledo Pact and its effect on pensions? This long-awaited document that took several years to write, was finally approved in October 2020. It is a report for the reform of the public pension system that includes 22 recommendations created by the set of political parties. These are keys to carrying out the promised pension reform that has long been on the table for debate. Not only the political parties will decide the approved changes, but also the unions and employers through negotiations.

In order to clarify everything that was agreed in the Toledo Pact and how it affects pensions, we will make a short summary of each of the recommendations approved by the Parliamentary Commission. In addition, we will say the exact date of approval of this document. If you want to know more about the Toledo Pact, keep reading.

What was agreed in the Toledo Pact?

The Toledo Pact agreed a total of 22 recommendations

The Toledo Pact is famous for its relationship with pensions, an issue that worries a large part of the Spanish population. Among the best known measures imposed by the Parliamentary Commission is the maintenance of the purchasing power of pensioners by law. This is revalued each year based on the real CPI (Consumer Price Index). However, there are many more recommendations created by the Toledo Pact, in fact there are 22 in total. Next we will make a small summary of the content of each one of them.

Recommendation 0: Defense of the public system

Starting the list with recommendation 0 related to the defense of the public system, the Toledo Pact reaffirms that it will maintain its commitment to maintaining and improving the public Social Security system, paying special attention to the pension system. The idea is that social contributions continue to be the basic source in terms of financial coverage of contributory benefits. In addition, universal services and non-contributory benefits will be financed by State contributions to Social Security.

Recommendation 1: Separation of sources

The Toledo Pact aims to end the existing Social Security deficit in 2023. In addition, he insists on the importance of transmitting to the population that a fairly large part of this deficit is due to the assumption of certain improper expenses. In other words, they should not have been paid by social contributions.

What solution does the commission propose? According to her, these improper expenses they should become the responsibility of the General State Budgets. In this way they would be financed by general taxation. These are some examples of what it includes:

  • Aid to companies acquired due to reductions in the Social Security contribution.
  • Flat rates, among others, of favorable treatment at the time of quotation.
  • Benefits related to the care of the minor and the birth.
  • Maternity supplement with respect to the pension.

Recommendation 2: Rises with the CPI

What is the CPI? It is the consumer price index. It is an indicator that measures how the prices of goods and services vary during a certain period of time in a specific place. In this case, there was already a preliminary agreement for 2018. This pension revaluation mechanism approved by Rajoy causes annual increases of 0,25%.

The Toledo Pact reiterates in its recommendation 2 the defense of the following: «The maintenance of the purchasing power of pensioners, its guarantee by law and its preservation through the adoption of measures aimed at ensuring the social and financial balance of the pension system in the future". It also explains that any increase in pensions that is above the CPI should be financed with charges for other financial resources not related to Social Security.

Recommendation 3: The 'pension money box'

Another issue that was addressed in the Toledo Pact is the so-called pension money box, which refers to the Reserve Fund. During the mandate of Rajoy, this was emptied 90%. As soon as the balance of the accounts belonging to Social Security has been recovered, The Toledo Pact proposes that the surpluses of the contributions be incorporated back into the Reserve Fund and establish a minimum surplus in it.

In addition, it points out that this fund does not serve to resolve financial imbalances whose nature is structural. However, yes it can be an important help when solving cyclical imbalances that can occur between expenses and income from Social Security.

Recommendation 4: Freelance Quote

Regarding the social protection of the self-employed, the Toledo Pact proposes to establish measures that allow an early retirement and also work part-time. According to the Commission, the sustainability of pensions requires that the contribution of the self-employed approaches their real income gradually. However, he points out that this point must be negotiated with the employers and the unions.

Recommendation 5: Trading periods

Recommendation 5 deals with trading periods. In this regard, 15 years are maintained as the minimum contribution period to be able to access a Social Security pension and its progressive extension to 25 years. However, as a novelty it includes the Toledo Pact that people can choose those 25 years in such a way that they are more favored at the time of collecting the pension.

With regard to people who have fairly long working lives, the solution offered by the Commission is that they can discard a specific year or choose the section of their trading career to calculate the pension.

Recommendation 6: Employment incentives

Regarding the financing of employment incentives, the Toledo Pact dictates that they cannot be made from social contributions. For this reason, it recommends that they should be used only as an exceptional tool and in groups and situations that should be favored, such as people with disabilities or at risk of social exclusion, the unemployed who have been unemployed for a long time and victims of violence. gender, for example.

Recommendation 7: Citizen information

Recommendation 7 on citizen information urges the Government to comply with its information obligations presented in article 17 of the General Law of Social Security. This way, each of the Spanish citizens will be able to access periodic and individualized information about their future pension rights.

Recommendation 8: System management

A recommendation has also been made about the management of the Social Security system itself. According to the Toledo Pact there is an urgent need to reinforce, recover and renew the workforce and thus achieve a more effective and efficient management.

Recommendation 9: Mutuals of Social Security

Mutual insurance companies related to Social Security also appear in the Toledo Pact. Regarding them, the recommendation proposes the following:

  • Comply with the parity rule regarding the composition of its governing bodies.
  • Give them a certain amount of flexibility regarding the use of its resources, but it must be compatible with a strict control carried out by Social Security.
  • Improve both the use of resources and mutual experiences, especially with regard to trauma services.

Recommendation 10: Fight against fraud

An important issue in our country is fraud. The Toledo Pact insists on the importance of strengthen the fight against fraud, which also influences Social Security. For this purpose it proposes two solutions:

  • Clarify legislative gaps (This way, for example, cases of false self-employed would be avoided).
  • Harden the sanctions regime to those companies that do not comply with the obligations they have regarding Social Security.

Recommendation 11: You both contribute so much you receive

The Toledo Pact was approved in October 2020

Recommendation 11 deals with contributivity. In other words: the relationship between the amount of the benefit and the contribution effort of each worker. Basically they insist again that, by eliminating years or selecting the period, people can be favored when it comes to collecting the pension. In this way, those who have been affected by the last crisis right at the end of their working life, their pension will not be penalized.

Recommendation 12: Retirement age

Regarding the retirement age, The Commission argues that this should be as close as possible to the legally established retirement age. To achieve this, you must voluntarily extend your working life, exceeding the retirement age. Furthermore, the Toledo Pact insists public authorities to pay special attention to situations of vulnerability that this recommendation could cause in certain groups. Another insistence of the Pact is that access to early retirement be reviewed so that the reduction coefficients are always equitable.

Recommendation 13: Widowhood and orphanhood

Both widowhood and orphan benefits will continue to be contributory, but the Commission proposes adapt the pension to the family and social realities and the socioeconomic circumstances of the people who benefit. In this way it tries to improve the protection of pensioners who have no other resources. For people over 65 who obtain a widow's pension, the Toledo Pact considers that the percentage of the regulatory base should be increased, since it is most likely their main source of income. As for orphan pensions, he proposes to improve them, especially the amount.

regulation base
Related article:
What is the regulatory base

Recommendation 15: A sufficient system

In recommendation 15, the Commission defends that the public pension system and the sufficient establishment of the same is supportive. To fulfill this description, it considers appropriate to establish certain suitable references, such as the replacement rate. This relates the average pension to the average salary of all workers. Thus, continuous monitoring of the evolution can be carried out, and in case of deviation it will allow the adoption of measures that are considered appropriate. What's more, the Commission supports the maintenance of minimum pension amounts and that the supplements to these minimums should be assumed by taxes, that is, by the General State Budgets, instead of by social contributions.

Recommendation 16: Complementary systems

The Toledo Pact recommends implementing supplementary pension plans, especially those for work. These must be non-profit and belong to a different legal and fiscal regime. This would improve the current regime and prevent these savings systems from being considered financial products.

Regarding individual pension systems, the Toledo Pact insists that these should be more transparent. In this way, administration costs would not imply negative returns for savers.

Recommendation 17: Women

A specific recommendation for women could not be missing. The Commission calls for guarantee equality in the workplace and also in pensions. That is to say: It recognizes that today there are still gender gaps. In order to combat them, the Toledo Pact proposes the following:

  • Address the issue of care so that the professional careers of all those who have other dependents in charge do not generate contribution gaps for this reason.
  •  Enhance co-responsibility using certain tools, such as parental permissions.
  • Create measures that allow identify remuneration discrimination.
  • Enter a type of corrections to fill gaps in listing careers that are caused by irregularities in professional careers, such as employment from home.
  • Implement reforms whose purpose is correct discriminatory treatments with part-time workers.

Recommendation 17 bis: Youth

For young people, the Toledo Pact asks that their working conditions are improved. This is how it tries to boost the confidence of this group in the Social Security system. To this end, it proposes adopting definitive legislative measures whose purpose is not only to guarantee, but also to improve the social protection of scholarship holders.

Recommendation 18: Disabled people

Regarding people with disabilities, the Toledo Pact says that All measures whose purpose is to eliminate obstacles so that these people can access a decent job must be intensified.. For this reason, it insists that the legislation should promote the maintenance of the professional activity of people with disabilities and facilitate their incorporation.

Recommendation 19: Migrant workers

Another recommendation of the Toledo Pact is favor the arrival of legal immigrants. According to the Commission, these strengthen the pension system, since the Spanish population is aging. His idea is to create mechanisms that incorporate immigrants into the labor market. Take advantage of this recommendation to announce that the Administration should intensify its efforts to prevent racism, discrimination and exploitation in the workplace.

Recommendation 19 bis: Digitization

Although digitization is inevitable in the era in which we live, the Toledo Pact warns that it can affect the ordering of labor relations and the organization of work. They emphasize that it is essential favor the inclusion of all workers within the system. In this way, it is proposed to combat the informal economy and also guarantee protection in situations of need.

On the other hand, the Commission notes that there is a real risk that contributory social protection will be insufficient. This is because the labor relations of digital platforms are usually intermittent and sporadic. For this reason, it recommends that mechanisms considered non-contributory should be strengthened. To counteract the reduction in Social Security income caused by digitization, the Toledo Pact insists on correct dependency on social contributions, since the productive and demographic situation has changed a lot in the last decades.

Recommendation 20: Parliamentary Control

Finally they talk about parliamentary control. For this task, The Commission for Monitoring and Evaluation of the Toledo Pact Agreements is permanently established and the Government must inform it annually of the situation in which the Social Security is. The Toledo Pact insists on the importance of intensifying the monitoring of the results obtained in the fight against fraud, the financial balance belonging to the system and the adequacy of pensions.

When was the Toledo Pact approved?

The Parliamentary Commission points out that investigations of Social Security tax fraud must be strengthened

After meetings that lasted more than four years, In the end, the so-called Toledo Pact was closed on October 23, 2020. It took a lot of negotiations for the parliamentary commission to finally achieve its mission: to create a guide for the public pension system. They have come to approve a total of 22 recommendations, but the Toledo Pact recalled that five years after its approval, “the Congress of Deputies will have to proceed with a general review of the recommendations of the Toledo Pact, as well as a an evaluation of its degree of compliance, through the specific parliamentary instruments for this purpose.

I hope that now you are clearer about everything that the Toledo Pact implies, at least in short. You can leave me your opinion in the comments.


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