A majority of senior citizens will lose purchasing power in 2012 for a second consecutive year following Prime Minister Mariano Rajoy's backtrack on promises not to raise taxes, which has indirectly led to another broken electoral pledge to maintain pensions.

Around half of pension claimants will feel the pinch despite a one-percent rise in their incomes as tax hikes will effectively cancel out that increase, designed to compensate for forecasted inflation. Those on the highest pensions will be affected most as the tax levied on their incomes will be greater than the pension increase. Conversely, those receiving the minimum amount ? 700 euros a month, equivalent to 9,600 per annum over 14 payments ? will recover some of the purchasing power lost in 2011.

The latest Social Security statistics, released last November, show that of the 5,281,894 senior citizens in Spain, 2.72 million receive pensions above the 700-euro mark. Those who live on 700-euro pensions can claim additional income depending on personal circumstance, such as whether they are married and file joint tax returns or have children under their care.

Also announced by Deputy Prime Minister and Popular Party spokeswoman Soraya Sáenz de Santamaría and Finance Minister Cristóbal Montoro during the presentation of the decree-law on Friday was further bad news for civil servants, who had their salaries reduced by five percent last year and then frozen for 2012. In addition to having their working week increased to 37.5 hours from 35, current employees are to have their pension contributions rescinded for 12 months. The government has also slammed shut the door on any new public sector job appointments in 2012.

"During the 2012 financial year, [public] administrations, entities and companies [...] cannot make contributions to employee pension plans or collective insurance contracts that include contingency cover in the case of retirement," the decree read.