* Govt breaks pledge on inflation-linked pension review
* Step will save some 3.8 billion euros to meet deficit goal
* Confirms pension hike of 1 percent in 2013
By Andrés González and Julien Toyer
MADRID, Nov 30 Spain will not make its usual
end-of-year review to adjust pensions for 2012 inflation, the
government said on Friday - a move to meet deficit goals that
hits around 9 million retired people.
The government, breaking an electoral campaign pledge, said
it would instead raise pensions by 1 to 2 percent in 2013 and
tap reserve funds to ease liquidity tensions around pension
Spain's fiscal situation left no choice over the decision as
meeting a 2012 deficit target of 6.3 percent of output was the
top priority for Spanish authorities, the centre-right
"It was a difficult, painful decision because it was the
last thing we wanted to do, but we had no other choice," Labour
Minister Fatima Banez said at a news conference following the
weekly cabinet meeting.
The move was unexpected as Prime Minister Mariano Rajoy had
said earlier this year that he would protect pensions, the only
remaining campaign promise he had not been forced to break as
Spain was dragged into the centre of the euro zone debt crisis.
When Reuters revealed the government was mulling not
applying the inflation-linked review this year, Rajoy at first
ruled it out, then said since September that it would be the
last thing he would do to balance public finances.
Under Spanish law, pensions should be reviewed each year in
line with the inflation data of November, which came out at 2.9
percent on Friday. By not applying the rule, the government will
save around 3.8 billion euros and keep its EU-agreed deficit
target within reach.
"This responsible decision will enable (Spain) to meet its
deficit target, an indispensable objective to make sure Spain
can access funding, exit the crisis and come back to growth,"
the government said in a statement.
As announced in September, all state pensions will rise by 1
percent as of January 2013, while pensioners who receive less
than 1,000 euros a month will get an extra 1 percent increase.
This will add just 1.5 billion euros to the 2013 budget.
The government also passed a new law to unlock a pensions
reserve fund and increase by 4.3 billion euros the capital
buffer available to pay pension cheques.
The fund, which was set up in 1997, was used for the first
time this year but the government has already tapped the maximum
available amount allowed per year.
Ministers had been divided on whether or not to touch the
pensions because of the blow to Spain's around 9 million retired
people, a source close to the government told Reuters.
But by doing so, Spain will please its European Union
partners and the European Central Bank, which is opposed to
inflation-linked reviews of pensions and wages.
Spain is so far on-track to meet its year-end deficit target
but analysts say that local finances and higher costs for the
social security system could derail Spain's efforts.