- On 15 June the Council of Ministers approved a loan of €10,192 million to the General Treasury of Social Security.
- In June the ordinary and extra payments of about 9.6 million pensions are paid: obligations total €17,727 million.
- Of the credit, €7,500 million will be released to supplement contribution income; it helps to understand how the system is financed.
On 15 June 2018 the Council of Ministers approved a State loan to the General Treasury of Social Security of €10,192 million. It ensures timely payment of June’s pension payroll, which includes the extra payment.
According to the Government, as every year, social security must in June pay out the ordinary and extra payments of nearly 9.6 million pensions, on top of the settlement of income tax on pensions subject to it. This year, obligations reach €17,727 million. Of the approved credit, €7,500 million will be released.
June’s payroll
Pensions are paid in fourteen instalments a year: one each month plus two extra payments, paid in June and November. That is why June’s payroll is much larger than that of other months. That month’s contribution income is not enough to cover it, and the system needs additional financing.
The State provides that financing through a loan, granted under a provision of the 2017 State Budget, extended for this year. Loans of this type must be repaid, so their existence is not equivalent to a subsidy. The figure reflects the gap between the system’s income and spending in a month of higher outlay. This concentration of payments in June and November means that the social security treasury needs more liquidity in those months than during the rest of the year.
Meaning for families and companies
For pensioners, the loan guarantees that the payment will be received on the scheduled date. But the news is a reminder that the system’s financial balance depends on contributions, the number of contributors and pension spending, a debate open for years that affects those who work today and will retire in the future. Social security periodically publishes information on income, spending and the number of pensions, and those data make it possible to follow the system’s evolution without relying only on press headlines.
For companies, the mechanism illustrates the importance of social contributions as the main source of pension financing. Any change in their rates or bases feeds directly into labour cost, something periodically discussed in public debate and worth following closely. In the debate on pension sustainability, variables such as population ageing, the evolution of employment and wages and the ratio of contributors to pensioners are frequently cited.
What to review
Anyone planning their retirement should consult their work-life report and the public pension estimates provided by social security, and assess whether the expected level covers their needs. From there, they can consider whether to supplement income with their own savings or pension schemes.
It is also worth remembering that pensions are taxed in personal income tax as employment income, so the net amount is lower than the gross. This information is general and is not financial or tax advice; for your case, consult your adviser. When planning to save for retirement, it is worth setting a realistic income target, estimating the contribution years still to come and reviewing the plan periodically, adjusting it to changes in work and family circumstances.
Knowing how a pension is paid helps you plan your own.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
