Spain | Public pensions in early 2025

Summary

Despite the high GDP growth rate of the Spanish economy (3.1% forecast for 2024) and a buoyant employment outlook (2.4% year-on-year growth in Social Security affiliation in December), the pension system has not yet managed to reduce its high structural deficit.

Key points

• Key points:
• According to the latest data, in the third quarter of 2024, Spain’s tax deficit reached 1.91% of GDP, up from 1.83% in the same period of 2023.
• On top of this deficit, we need to add the government’s expenditure on non-contributory pensions, government pension top-ups, and pensions for retired civil servants, which raises the total financing needs to 4% of GDP.
• In 2025, various significant changes will be made to the Social Security contributions system, which will help to generate around 1.7 billion euros in additional revenue, according to the Ministry’s forecasts.
• However, this increase in revenue is just over one-tenth of GDP, a far cry from the deficit currently existing within the system. Among the measures is the increase in the Intergenerational Equity Mechanism (IEM), the rate of which will go from 0.7% to 0.8%, generating additional revenues of 690 million euros.
• Another highlight in 2025 will be the assessment that the Independent Authority for Fiscal Responsibility (AIReF) will carry out on the sustainability of the system. This analysis—the first in a three-year series—will examine expenditure and revenues and identify risks to the financial stability of the Social Security system.

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