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Intergenerational equity mechanism (MEI)

Recently, and although little publicity, a new payroll tax has been published for both workers and companies, starting this January, the new Intergenerational Equity Mechanism (MEI) comes into force.

This tax comes to “replace” the so-called “sustainability factor” which, although it was planned to be implemented in 2019, but never occurred. In this case, the sustainability factor would have linked the amount of the pension to the evolution of the life expectancy of the pensioners through a mathematical formula that considered the mortality tables of the pensioners with 67 years as a reference.

What is the objective of the MEI?

Preserve the balance between generations and strengthen the sustainability of the Social Security system in the long term (L21/2021 available Final4th). Basically it consists of increasing the Social Security Reserve Fund through an extra contribution to the monthly contribution of workers in order to be able to pay pensions in the coming years.

This measure will prevent the younger generations from assuming the full weight of the retirement of more populated generational groups.

The time to retire is approaching for people born during the baby boom60s and 70s), and this will increase the expense that will come out of the Social Security coffers to cover their retirements.

There is a clear imbalance between the size of the generations that access retirement and those that are of working age.

This tax is already used in countries such as France, Portugal or Sweden.

Generational Equity

What is the application deadline?

From January 1, 2023 to 2032.

Starting in 2023 and on a triennial basis, the level of spending that will exist in 2050 will be verified, and decisions will be made.

What is the additional quote? Where will this tax be applied?

This tax represents a contribution of 0.6%, which will be distributed as follows:

  • The 0.5% paid by the employer.
  • The 0.1% will be paid by the worker.

This percentage is applied to the contribution base for common contingencies, in all situations of registration or similar to registration in the Social Security system in which there is an obligation to contribute for retirement pension coverage.

Therefore, starting with the January 2023 payroll, we will see said tax reflected in the payroll, as a concept of deductions.

How much does this amount affect a worker?

Well, it will depend on the amount of your payroll. For example, a person who receives a gross salary of €1,000:

  • The company will pay €5 more per month to social security through social insurance.
  • The worker will have €1 per month deducted from his or her payroll.

If the person receives 2,000 euros:

  • The company will pay €10
  • The worker will pay €2

With this new tax, the State intends to raise around 40,000 million euros in that period, which will go directly to the Social Security Reserve Fund.

If you like these topics, and want to learn and learn more about this matter, request information and sign up for our Master in HR: People Management, Talent Development and Labor Management.

Labor Manager || Professor - Work area in EIP - International Graduate School

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