May 23, 2022 8:32 am

Fedea warns that the pension reform will bring more tax burdens on the youngest




The Intergenerational Equity Mechanism (MEI) devised by the team of the Minister of Inclusion and Social Security, Jose Luis Escriva and agreed with the social agents with the declared objective of improving the financial sustainability of the pension system, is failing to convince the experts.

The first evaluation carried out by the ‘think tank’ Faith, which includes among its researchers some of the most renowned experts in the pension system, concludes that it will be insufficient to guarantee financial stability and that it will translate in the future into a significant increase in the tax burden of the youngest.

The report emphasizes that the rise in contributions between 2023 and 2032 is the only concrete measure provided by the mechanism in terms of sustainability, but predicts that its application will only guarantee the youngest cohorts of the population a pension similar to the current one , but at the cost of demanding “a much higher contribution effort than their elders”.

Fedea contrasts this orientation with that of the repealed and never applied Sustainability Factor, “which tried to improve equity between generations by adjusting the transfers so that all of them would enjoy in the future, other things being equal, similar retirement income over the entire life cycle”.

In his opinion, the “badly named Intergenerational Equity Mechanism” does not advance one iota in that equity between generations but rather increases the burden on the younger population cohorts “precisely those that deserve a break given that their shrinking size in relation to the stock of retirees”.

An irrelevant reserve fund

Fedea also questions the real operability of the ‘star measure’ of the device, the configuration of an extra business contribution rate between 2023 and 2032 to try to defray the bill for the wave of retirements of ‘baby boomers’ that will take place throughout the period and with which it intends to obtain extra income of 40,000 million euros in ten years.

The report of the ‘think tank’, which they sign Angel of the Fountain, Miguel Angel Garcia Y Alfonso Sanchez, predicts that the extra rise in contributions will not even be enough to cover the increase in expenses that the pension system will have in that period, so its contribution in terms of sustainability will be basically inconsequential.

The entity regrets that the Government’s strategy is to “relocate the hole”, charging the State with the Social Security imbalances, and warns that this will not serve to close the pension deficit “and could tend to increase it if it transmits to citizens the impression that there is no problem.

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