The government and the European Commission reached a last-minute agreement on a controversial pension system reform which paves the way for Madrid to receive the next tranches of the EU’s Next Generation funds.

After months of work and tangible divergences between the two coalition partners, PSOE (S&D) and Unidas Podemos (EU Left), the government struck a deal on Friday, partially softening the coalition’s rift currently in.

The reform, agreed with the European Commission, is part of the several milestones committed by Madrid as a condition to unblocking a new disbursement of EU’s Next Generation resources.

The reform focuses on ensuring the system’s sustainability with different measures to strengthen income and includes a so-called “solidarity quota” for the social contributions of the highest earners, doubling the so-called intergenerational equity mechanism.

The mechanism came into force this year and involved, among other measures, a rise of 0.6 points in social contributions, of which the company and 0.1 pay 0.5 points by the worker.

Among the proposal’s main novelties, workers can choose between the current calculation system and a new one, extending the period to calculate it, something trade unions CC.OO and UGT, as well as Unidas Podemos oppose.

This last measure comes on top of the package of measures already agreed upon by the government in July 2021, which, among other changes, adjusted the revaluation of pensions to inflation.

The backbone of the reform is a new “dual computation period regime” established for the next 20 years, which will allow workers to choose between maintaining the 25 years of contributions currently taken into account for calculating the initial pension or counting 29 years with the possibility of disregarding two, leaving a de facto 27 years period.

According to sources at Spain’s Social Inclusion Ministry, the new option to extend and discard will be deployed progressively over 12 years, starting in 2026, “with the aim of benefiting workers with irregular working careers”.

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