From 1 January 2024 contributory pensions rise 3.8% and minimum pensions 6.9%. What the decree approved on 27 December sets, what it costs and what it means for taxpayers.
On 27 December 2023 the Council of Ministers approved Royal Decree-Law 8/2023, published in the BOE the following day, which sets the revaluation of pensions for 2024. Pensions rise from 1 January, and the decree, which governs the increase until a 2024 budget is passed, had to be validated by Congress in its plenary session on Wednesday 10 January. The decree also brings together other measures: for example, it extends until 30 June 2024 the ban on dismissals citing higher energy costs or the conflict in Ukraine.
What rises and by how much
Contributory Social Security and civil-service (Clases Pasivas) pensions rise 3.8%, the average CPI between December 2022 and November 2023. This is not a discretionary decision: since 2021 the law has tied the increase to inflation, and this is the third year it has applied, after 2.5% in 2022 and 8.5% in 2023. Compounded, the three increases amount to a cumulative rise of around 15% in three years.
Minimum pensions, non-contributory pensions and the minimum living income rise 6.9%, and widows’ pensions with dependants rise 14.1%. The non-contributory retirement and disability pension is set at €7,250.60 a year. The maximum pension becomes €3,175.04 a month, €44,450.56 a year. The government calculates that the measure reaches almost 11.8 million pensioners and benefit recipients. The gender gap supplement rises to €33.20 a month. SOVI pensions (the old-age and disability insurance that predates Social Security) stand at €7,399 a year, or €7,182 when combined with a widow’s pension.
What it costs and who pays
According to Funcas, the 3.8% increase adds about €6.5 billion to annual pension spending, which it put at €170.8 billion in 2023 and around €180 billion in 2024. This is an estimate: the final cost also depends on the number of new pensioners and the size of their pensions. The monthly payroll for ordinary contributory pensions was €12,120.8 million in December 2023, according to the Ministry of Inclusion, Social Security and Migration, and the average retirement pension was €1,378 a month.
Spending is financed by social security contributions and, where those fall short, by transfers from the State. For companies and workers, the decree sets the Intergenerational Equity Mechanism contribution at 0.70% in 2024: 0.58% paid by the employer and 0.12% by the employee.
What it means for taxpayers
Public pensions are taxed in personal income tax (IRPF) as employment income, so a revalued pension raises the income subject to tax and to withholding. The obligation to file a return generally depends on employment income exceeding €22,000 a year. The threshold falls to €15,000 when there is more than one payer and the second and subsequent payers together exceed €1,500 a year. For this purpose, the Social Security pension and the civil-service pension are treated as coming from two payers. These are the thresholds for the 2023 return filed in 2024.
In families with wealth, the public pension is often added to other income: rents, interest, dividends or pension plans. It is worth adding everything up when reviewing the return and withholding, and checking whether the increase changes the tax bracket or entitlement to any deduction. Ask your tax adviser how it affects you.
A pension that rises with CPI is also public spending that rises with it.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
