Europe | Pension schemes in the current demographic scenario: Spain and the EU

The public pension system is a basic pillar of the welfare state in Europe. They are viable and sustainable as long as they adapt to the continuous economic, social, and demographic changes that societies experience. The challenge is to find the appropriate balance in the face of continuous changes in the system.

Key points

• Key points:
• First, changes must be gradual but effective in order to guarantee sustainability and be credible to society. There is no dilemma between sufficiency and sustainability. Secondly, they should be fair between generations of the population affected by changes in the system.
• Although there is considerable uncertainty in the population projections, they all point to the dependency ratio almost doubling or close to doubling in European countries between 2020 and 2060.
• Countries such as Sweden have already implemented changes that can serve as a guide for practical improvements to be made in other countries. Half of the countries in the EU use one or more adjustment mechanisms that link the initial pension to life expectancy or to the present value of an annuity and the retirement age to life expectancy, and revalue pensions according to demographics or economic variables.
• There are no definitive solutions to the challenge of pension sustainability, but relatively gradual adjustments, because society is constantly facing new challenges. Nor are there any free solutions, since transferring the pension deficit to the State does not necessarily solve the problem.
• The pension system generates incentives that affect the mobility of workers in the EU. A social consensus is needed on how to distribute the adjustments fairly, efficiently, and transparently.

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