Spain is one step ahead of pension reform
Spain will pay workers to delay retirement as part of a pension reform strategy that analysts say does not go far enough to reduce a huge deficit in the system.
With nearly 30 billion euros ($ 36 billion) in annual losses in 2020 and rising, Spain’s social security budget is one of the main contributors to the country’s growing public deficit.
The European Commission has long demanded that Spain reform its pension system and made it a condition for accessing European Union economic stimulus funds.
As part of a reform plan unveiled earlier this month that aims to make more people work longer, Spain will hand out checks worth up to 12,000 euros ($ 14,000) per an for workers of retirement age who postpone their retirement.
On the other hand, early retirement would lead to a reduction in monthly payments.
But the reform, which has yet to be approved by the fragmented Spanish parliament, will also reinstate pension indexation to inflation.
“Retirees will no longer have to worry about how their retirement will unfold,” Socialist Budget Minister Maria Jesus Montero said at a press conference last week after cabinet approved the reform.
A Conservative government eliminated indexation in 2013, although in 2018 it increased pensions in line with inflation following protests by retirees against their loss of purchasing power.
The 2013 reform also gradually increased the legal retirement age to reach 67 in 2027 from around 65 at present.
Rafael Pampillon, head of the economics department at IE Business School in Madrid, said raising pensions in line with inflation every year was “outrageous”.
“The system is not sustainable. Pensions should be frozen,” he told AFP.
Demography complicates the picture.
Spanish has one of the longest life expectancies in the world – around 83 years according to the World Health Organization – and the lowest fertility rate in Europe after Malta.
As a result, the number of young people under 25 entering the workforce each year is 30% lower than those over 40, Pampillon said.
Javier Diaz Gimenez, professor of economics at IESE Business School, said that while other southern European countries like Italy and Greece are facing the same problem, “in Spain the reform has been postponed, the consensus was to deny the problem “.
“People are living longer, so they cost more, so their pensions should be cut. It’s hard because it means breaking a promise to people who are about to retire” and who are waiting for a certain amount. sum after years of contributing to the system, he added.
The government said details of the pension reform plan would be worked out in the fall.
He will have to adjust the payments according to the funds available and the increase in life expectancy.
Social Security Minister Jose Luis Escriva recently sparked an uproar by suggesting that baby boomers – those born into the post-war baby boom between 1946 and 1964 – should eventually accept lower pensions and quickly backtracked.
With a general election due in two years, no party wants to risk alienating the large bloc of older voters by proposing pension cuts, said Pampillon of IE Business School.
“Everything is in the air,” he added.
Jordi Fabregat of Esade Business School said part of the problem is that Spain offers generous public pensions, with monthly payments amounting to 80% of a worker’s final salary compared to an average of 55. % for all of Europe.
“It is not the custom in Spain to save for retirement,” he added.
The only chance for a deep and lasting reform of the pension system is if there is “pressure from the European Union,” Fabregat said.