Spanish agree 'in principle' to raising pension age to 67

The Spanish government last night said it had struck a deal with trade unions to delay retirement for most workers.

It was hailed as a victory for socialist prime minister Jose Luis Rodriguez Zapatero in his campaign to cut the burgeoning state deficit.

Union leaders said there were still details to iron out before they would sign the pact but the labour ministry confirmed in a statement there was an agreement in principle.

With or without union backing, Mr Zapatero will raise the retirement age to 67, one of the highest in Europe, to see Spain become the latest European country to tackle pension reform as ageing populations and lower birthrates strain social security systems.

The reform will not have a fiscal impact before 2015 but is considered key to showing foreign investors the government is serious about structural change to revive its fragile economy and avoid a bailout similar to those in Ireland and Greece.

Pensions could account for 14 per cent of Spain's public expenditure by 2040-50, compared with about 9 per cent in 2010, according to economy ministry data. Last year was the first that Spain's pension system did not run a surplus.

French president Nicolas Sarkozy enacted pension reform in November, raising the retirement age to 62, despite protests. The move could see him kicked out at elections next year.