Spain | Assuring the sustainability of Social Security

Summary

One of the roles of Social Security is to provide insurance in the form of retirement pensions. Society is faced with the challenge of ensuring that Social Security provides this social policy through a sustainable and adequate pension system.

Key points

• Key points:
• To lend credibility to pension systems and avoid the risk of their becoming insolvent, thus shoring up public accounts, most developed countries use mechanisms that make gradual automatic adjustments.
• A recent OECD report points out the weaknesses of the Spanish pension system from the standpoint of sustainability. First, the relative income of over-65s is higher than in most countries because of an actuarial deficit.
• The terms of entitlement to a full pension are softer than in other countries. In addition, only part of a person’s working career is used to calculate the pension entitlement.
• Moreover, the two former automatic adjustment mechanisms (Sustainability Factor and Pension Revaluation Index) have been derogated and replaced by the Intergenerational Equity Mechanism, which, at least for the time being, merely raises social contributions and delays discretionary adjustments until 2032.
• With the latest reform of the public pension system, Spain is committed to passing on the Social Security system sustainability issue to the government, so that it can take charge of a growing deficit, which currently represents 2.5% of GDP, about half of the forecast deficit for government functions as a whole.

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