Spain | Projections of the public pension system

Summary

We have recently learned of a couple of new developments about the Spanish public pension system. The first is the revaluation of pensions for 2024, which will be close to 4%. The second is the long-term projections of public pension expenditure.

Key points

• Key points:
• The publication by the Ministry of Inclusion, Social Security and Migration (MISSMI) of its projections of public pension expenditure until 2070 aims to meet one of the milestones required to receive European NGEU funds, and to assess the impact of the reform carried out in recent years.
• In 2022, the difference between total pension expenditure and contributory income was equivalent to 4.4 points of GDP, divided between 2 points for contributory pensions, 1.1 points for non-contributory pensions and 1.3 points for civil servants.
• In 2023, total pension expenditure is projected to stand at 13.7% of GDP and increase to 15.7% in 2050 in the MISSMI pre-reform baseline, before incorporating measures to reduce expenditure growth and increase revenues.
• Assessment such as those of AIReF or, more recently, FEDEA indicate, in general, smaller effects on the reduction of expenditure and the increase in income than those estimated by the MISSMI, especially with regard to incentives for delayed retirement, higher contributions for the self-employed, and improvements in minimum pensions.
• Using the rest of the MISSMI assumptions, with Eurostat's demographic projections, total pension expenditure in 2050 would increase from 15.7% in the pre-reform baseline scenario to 16.9%, an additional 1.2 points of GDP. Another hypothesis that skews pension expenditure downward as a percentage of GDP is productivity growth of 1.5% on average between 2023 and 2050, higher than that forecast by AIReF (1.1%) or that observed from 1980 to 2022 (1%). If productivity grew by 1% by 2050 as in the last four decades, total pension expenditure in the pre-reform scenario would increase from 15.7% of GDP to 17.2%.

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