The government doesn't want to reveal whether it will pay retirees because of the loss of purchasing power that will occur if the inflation rate exceeds how much it increases pension payments this year. From the moment that the executive ruled out freezing retirement pensions, it was obvious that the current law would force them to offer this compensation.
Throughout the entire year Social Security accounts have suffered from the effects of falling contributions to the country's pension system, and the consequent lack of revenues, to the point that the system had to dip into its reserve fund for 3 billion euros in aid. This situation combined with inflation (3.4% in September) render the retirement payments unviable if Spain wishes to meet its 2012 deficit objective.
Still, for 2013 the government will re-raise pensions and is not showing its cards about whether it will pay pension bonus payments. Yesterday the reason was unveiled: the IPC (International Pension Centre) scale used to calculate pensions will be switched to the IC (Constant Tax Rate), which is a new indicator published for the first time this month that discounts price variations resulting from Spain's recent VAT increase. Using this index instead of the IPC, inflation rose 1.4% instead of 3.4% in September. This is a magic trick for saving 4 billion euros and deceiving retirees into thinking that their pensions are going up. But the VAT will apply to them, too.
Spain can't afford to increase pensions, but retirees do deserve a clear explanation of what is happening. The team in charge should tackle the problem quickly and directly.
