Spain | Sustainability of pensions: a long road ahead

The recommendations of the Pension Commission of the Spanish Congress (Pacto de Toledo) are a good starting point for addressing gradual changes in the system, but they are not enough to ensure its sustainability. If the appropriate measures are not taken, the recommendations have the potential to imbalance the system.

Key points

• Key points:
• The most positive aspect of the agreement is the broad consensus reached by most political groups, raising issues that are a good starting point for changes that need to be made by the system.
• Even so, the recommendations avoid making concrete and focused proposals on how to ensure the sustainability of the system in the long term, nor do they introduce automatic adjustment mechanisms that guarantee a balanced system in the face of any future demographic or economic development scenario.
• The initial recommendation on protecting the public system does not explicitly reference the importance of sustainability. It is difficult to ensure intergenerational and intragenerational solidarity or to ensure that allowances will be sufficient in the future if the system does not work with sustainable mechanisms.
• The two most important recommendations in the Toledo Pact that aim to reduce and prevent the increase in the system's deficit are to transfer inappropriate expenditure from the pension system to the State and to bring the effective retirement age closer to the legal retirement age. Although these are steps in the right direction, they are not enough.
• The best way to ensure the principles of intergenerational and intragenerational solidarity, sufficiency, public and private responsibility, contributiveness and sustainability is to gradually transition to a pay-as-you-go system based on individual notional accounts.

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