Spain | Immigration: temporary relief for pensions

Spain must continue to offer an attractive society to ensure migratory flows that will transform the demographic structure. Immigration, like productivity growth, helps to spread the increase in pension spending due to the retirement of baby boomers over more decades, though it does not eliminate it.

Key points

• Key points:
• According to the latest projections for Spain in the European Commission's 2024 Ageing Report, immigration is set to be the sole source of expected population growth. Foreign-born people will increase from 18% of the total at the beginning of 2024 to 28.2% in 2050.
• Higher social security contributions, whether due to more immigrants or higher salaries, mean higher pension spending in the future. Raising the retirement age would reduce the inevitable increase in pension spending, as people would contribute to the system for more years and receive their pension for fewer.
• Immigration and the increase in the employment rate and the age of retirement will succeed only in countering the retirement of the baby boomer generation. Still, they will not increase the average number of contributors. Spain is the EU country where pension spending is most sensitive to assumptions about migration flows and productivity, after Cyprus and Belgium.
• Through to 2050, pension spending is expected to increase by 10.4 points due to demographic factors, and decrease by 2.3 points due to the fall in the average pension (with a 9-point reduction in the replacement rate of the initial pension with respect to the last salary), by 2.1 points due to the higher employment rate, by 1.2 points due to lower coverage, and by 0.7 points due to other factors.
• Pension spending as a percentage of GDP will increase by 4.2 points, well above the expected increase for social security contributions (1.7). It bears repeating that the Spanish economy ended 2023 with financing needs on top of social security contributions to cover public spending on pensions of around 4 points of GDP.

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