The 2021 Budget Law raises contributory pensions by 0.9% and non-contributory ones by 1.8%. What changes, what the maximum pension is and what safeguard the law provides against inflation.
Law 11/2020 of 30 December on the State Budget for 2021, published in the BOE on 31 December and in force since 1 January, sets how much public pensions rise this year. Its article 35 provides, in general, for an increase of 0.9% for Social Security pensions and for those of the State civil-service scheme (Clases Pasivas).
What rises and by how much
Contributory Social Security pensions and Clases Pasivas pensions rise 0.9% (article 39). According to the Ministry of Finance, the increase reaches some 9.76 million pensioners. Non-contributory retirement and disability pensions rise 1.8%, twice as much, and stand at €5,639.20 a year (article 44); the Ministry estimated that it would benefit some 450,000 people with lower incomes.
Article 43 sets the minimum amounts for contributory pensions. The retirement pension for a holder aged 65 with a dependent spouse stands at €11,914 a year, €851 a month in fourteen payments, against €11,807.60 in 2020: 0.9% more. Without a dependent spouse, the minimum is €9,655.80 a year. To receive the minimum-pension supplement, the pensioner’s income from work, capital or business activity generally cannot exceed €7,707 a year.
The law also includes a safeguard for purchasing power (the forty-sixth additional provision). If average inflation over the twelve months from December 2020 to November 2021 exceeds 0.9%, those already receiving a pension on 1 January 2021 will receive, before 1 April 2022 and in a single payment, the difference between what they were paid in 2021 and what they would have been paid at that average inflation rate. Whether it applies will only be known when the November 2021 inflation figure is published.
The ceiling on public pensions
Article 38 sets the maximum public pension that can be awarded in 2021: €2,707.49 gross a month, or €37,904.86 a year if more or fewer than fourteen payments are received. Articles 40 and 41 add that pensions already above that figure are not uprated and that the increase for the others cannot take them above the annual limit. On the contribution side, the maximum Social Security contribution base is set at €4,070.10 a month.
For anyone planning retirement, the public pension replaces only part of the income of those who have contributed on high bases, because both the maximum contribution base and the maximum pension are capped. The same law also reduces the room for supplementary saving: the annual contribution limit for individual pension plans falls to €2,000, with a further €8,000 if it comes from employer contributions.
What to review
The general increase is an update by law, not a benefit that has to be claimed. It is worth reviewing three things, however: whether the income test for the minimum-pension supplement is still met, because recipients must tell the managing body, within one month, that they have exceeded the €7,707 limit; how the household’s disposable income changes when the public pension is combined with income from savings; and, for those close to retirement, how much public pension they can expect compared with their spending. Ask your adviser how it fits your case.
The increase is small, but the 2022 clause is a reminder that a pension is always measured against the year’s inflation.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
