Social Security Schemes and Pension Systems
Types of Social Security Schemes
The Social Security (SS) tax system is structured into several schemes:
- General: Covers employees in industry and services (and related).
- Special: Covers other groups with specific socio-economic characteristics.
The general scheme comprises the majority of workers and provides a level of protection. There is a tendency towards homogenization of coverage schemes.
Scheme Details
The obligation to contribute begins when a worker starts employment. Contributions are required during maternity/paternity leave and temporary disability. The concepts of trading are “common contingencies: coverage of illness, accidents outside the workplace, retirement, maternity, paternity, and risk during pregnancy and breastfeeding.” Other aspects include industrial accidents and occupational diseases, unemployment, vocational training, and the wage guarantee fund. The share price is obtained by applying a percentage (contribution rate) to the monthly wage. The contribution rate differs for each item listed.
Special Arrangements
Special arrangements exist for:
- Agriculture: Farm workers in paid employment.
- Domestic workers.
- Coal mining: Employees active in coal mining.
- Seafarers.
- Autonomous workers (self-employed), except for those included in other special arrangements.
Each scheme has its own special rules on trading shares (e.g., the special scheme for self-employed allows workers to choose their contribution base between a minimum and a maximum established by the SS).
Special Type of Benefits: Pensions
Pensions are financial benefits for an indefinite period (although there are exceptions). There are two classes:
- Contributory Pensions: Retirement, permanent disability, death (widows, orphans, and family members).
- Non-Contributory Pensions: Pension and disability (attributed to the management bodies of each Autonomous Community).
Pensions: The Core Benefit
Pensions are the most important benefit, including permanent disability, retirement, widowhood, orphanhood, and benefits for family members. They represent the largest item of public expenditure in social protection and are the main source of income for retirees.
Financing Social Security
There are two pure models of funding:
- System Funded by the State Through Tax: Universal coverage, without requiring prior contributions. Benefits are conditional on the lack of resources.
- System Funded by Contributions from Workers: Coverage only for those who have contributed; benefits do not depend on a lack of resources.
Currently, there is a mixed form of funding: taxes and contributions (protection tax and welfare). The contributions are distributed among workers by a sharing system and a funded system.
The delivery system consists of an inter-system (each generation of workers pays the benefits of the previous generation) and the Spanish system. In the capitalization system, contributions of each generation are invested in financial assets.
The disadvantages of the delivery system are demographic trends. The system of capitalization has risk, uncertainty, and higher costs. Its advantages are that the inconveniences of one system are the advantages of the other.
New Economic and Social Environment
Principles of the 20th Century (SX): Public pension systems (65). An older population and traditional family structure.
Principles of the 21st Century (S. XXI): Increased longevity, reduced fertility, and changes in family structure. Life expectancy increases, and the percentage of older people grows. There is reduced fertility and delayed access to the labor market (working life is shortened). There has been debate about the sustainability of pension systems since the 1980s. This debate was particularly intense in Spain in the 1990s due to more intense and focused demographic changes and the effects of the economic recession on the budget. The subsequent expansion made them forget the problems. At present, there is a new debate.