Spain experienced a baby boom during the last two decades of Francisco Franco's dictatorship which ended in 1975, and people born during that era are expected to retire soon, putting state finances under increasing strain.

The scale of the increase, which will affect employees of all ages and income levels, has been a stumbling block in the three-way talks between the government, unions and businesses that have been going on for several weeks.

Earlier on Monday the CEOE and Cepyme business associations, which respectively represent large and small companies, abandoned the negotiating table, arguing the plan placed too much burden on employers and would damage job creation.

Employers will contribute an extra 0.5% and the workers the remaining 0.1%, unions said.

Passing the pensions reform was one of the conditions Spain's government agreed upon with the European Commission to secure the release of billions of euros in recovery funds.