Spain pensions: 2.5-point deficit rise despite reforms

Spain’s public pension deficit is projected to widen by 2.5 points of GDP between 2022 and 2050, even after reforms intended to put the system on firmer ground. A study by the Foundation for Applied Economics Studies (Fedea) says the changes improve the system’s long-term structure, but warns that the forecasts behind that finding are “excessively optimistic”.

The reforms of 2021 and 2023 aim to raise revenue and push up the age at which people actually retire. Fedea says the retirement of the baby-boom generation will nevertheless worsen the traditional financial balance, producing the sixth-largest increase in the European Union.

A better long-term score

The researchers used a new measure which compares a generation’s expected pension payments with the contributions it makes over its working life. Unlike the usual yearly balance of income and spending, it tracks the relationship across a full lifetime.

For Spain, the measure falls from 1.34 in 2022 to 0.90 by 2050. A score below 1 means the system is moving towards sustainability. Spain records the largest drop among Germany, France, the Netherlands and Sweden, falling by 0.44 points.

Fedea says stronger revenue and longer working lives under the recent reforms drive that improvement.

Warning over optimistic forecasts

But the study says the result rests on projections supplied by the Spanish government to the European Commission for the Ageing Report 2024. That report examines the long-term economic and budget impact of ageing populations across EU member states.

Fedea doubts that employment among people over 55 will rise as sharply as forecast. It says that assumption produces a higher effective retirement age and longer careers than are likely.

The researchers also call the predicted sharp fall in the replacement rate — the share of previous income covered by a new pension — “surprising and drastic”. If the projections prove right, they say Spain’s pension system would become more sustainable economically, financially and actuarially. That would still not stop its traditional financial balance deteriorating by 2050.

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Source: Europa Press / Mallorca.com