SPAIN – The Spanish government has presented a state pension reform proposal to trade unions suggesting pension payments could be decoupled from inflation and linked with life expectancy and economic conditions.

Employment minister Fatima Bañez, in a speech made earlier this week, stressed that the legal retirement age in Spain – which currently stands at 67 and is among the highest in Europe – would not be extended further.

However, she conceded that new measures would be introduced as early the beginning of next year to tackle the country's growing budget deficit – currently standing at 10.6% of GDP, according to official data.

The measures include a limit on inflation indexation from 2014 onward, while the employment minister said the government would introduce a minimal increase of 0.25% per annum on pensions, as well as a cap to prevent pension valuation from exceeding this percentage.

The government also plans to strengthen the 'pension sustainability factor' in 2019, which would aim to replace the traditional inflation-linked revaluation of pensions.

Instead, the revaluation would be based on the life-expectancy ratio, as well as the balance of revenues and expenses of the social security system in the years prior to a given year.

The measures announced by Bañez are in line with the recommendations made in July by a pension steering committee responsible for putting forward reform scenarios to ensure the balance of Spain's public pension system in the coming decades.

In its report, the group said new criteria should be taken into account in the calculation method used to determine the 'sustainability factor' –introduced during a previous reform in 2006.

The group also recommended taking into account probable life expectancy at the time of retirement, so people retiring sooner can receive a lower pension for a longer period.

In parallel to the state pension reform, the government is also looking at ways to strengthen its second-pillar system.

Speaking with IPE in July, Angel Martinez-Aldama, director of the country's investment and pension fund association INVERCO, said the government was expected to present a report to Parliament some time after this summer that would help define new measures to boost participation in the second pillar.

He said the reform report – originally scheduled for the end of June but delayed to give the government more time to finalise its proposals – would most likely focus on the need to reinforce the second pillar.