Spain | Pensions: insufficient reforms and challenges still to be overcome

This article addresses a number of recent, ongoing changes to the pension system in Spain, notably the revaluation of pensions based on the CPI, the introduction of the Intergenerational Equity Mechanism, and occupational and individual pension plans. We also discuss the key challenges that lie ahead.

Key points

• Key points:
• Demographic projections and the increase in life expectancy threaten the sustainability of the pension system in Spain as we move forward. The deficit of the contributory system currently stands at 2.2% of GDP and this figure is growing.
• The expected economic recovery from 2022 to 2025 will not be enough to reduce the deficit of the contributory system existing within the pension system, which in the most likely scenario will gradually climb to 2.7% of GDP over the coming three years.
• Failing to undertake gradual changes to the pension system, such as reducing the benefit rate, linking pensions to life expectancy, increasing the legal retirement age, or considering the entire working career, as ways to reduce the actuarial deficit of new pensions, will steadily expose the Spanish economy to a significant increase in fiscal pressure as we move forward.
• This could amount to 6 percentage points of GDP, or prompt abrupt and unanticipated future reductions in pensions that would entail insufficient supplementary income upon retirement. It might also undermine Spain’s efforts to draw alongside the most advanced economies of the European Union in relation to pension welfare.

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