Contrary to the analysis carried out by the tax authority Airef, the Ministry of Social Security published this Tuesday its report “Projections of public spending on pensions in Spain.” which maintains that the reforms undertaken by the Government since 2021 (to reduce spending and increase income) guarantee that the system will be sustainable until 2050 and that it will not be necessary to make new adjustments or activate the increases in social contributions that are part of the mechanism automatic safeguarding of the system provided for in the law itself.
Commitment to Europe
The publication of this document is part of the commitments of the Recovery Plan of Spain linked to the fourth disbursement of European funds Next Generation EU (for 10,000 million euros) that the acting Government is preparing to request from Brussels in the coming weeks.
As established in the Recovery Plan in your milestone 410, Before the end of 2022, Spain should have carried out the “publication of updated projections that show how the pension reforms undertaken in 2021 and 2022 guarantee long-term fiscal sustainability, also taking into account the impact of other structural reforms, such as the reforms of the labor market”. This is the report that the Ministry of Social Security published this Tuesday, which paves the way for the acting Government to request Brussels the fourth disbursement of European funds, for 10,000 million.
Economic and demographic projections
Based on certain macroeconomic projections (growth, inflation, employment and productivityabove all) and demographics (fertility rate, longevity and immigrationamong others), the 190-page document by acting minister José Luis Escriva includes figures that guarantee that, until 2050, pension spending will not exceed 15% of GDP at any time and that, in addition, the income measures adopted , will allow extra collection equivalent to 1.8% of GDP each year (annual average).
According to the pension reform law, if these two premises are truly met (that pension spending does not rise above 15% of GDP and that income measures contribute at least 1.7% of GDP), no It will be necessary to undertake any new adjustments to the pension system in the next 30 years. If any of these parameters fail, new adjustments will have to be considered, and the Independent Authority for Fiscal Responsibility (Airef), which has its own figures, believes that this will happen very soon, in 2025, on the occasion of the first review of the model.
The main discrepancy between the projections of the Escrivá ministry and those of the Airef lies in the productivity of the active populationwhich is much higher in the Government document.
The demographic projections of the Escrivá ministry have been built on the basis of a fertility rate 1.36 children per woman in 2050; a Life expectancy which will rise to 91.4 years for women and 87.1 years for men in 2050 and a net migration around 300,000 people each year, which is a similar figure to this year and last, but much higher than that projected by the INE, which moves an average of 200,000 people per year.
Furthermore, the Government’s economic projections include a gradual increase in occupancy rates thanks to the labor reform, incentives for delayed retirement and the tightening of labor markets. It is expected that the occupancy rate of 65 years It will go from the current 20% to 55% in 2050 and that of people between 66 and 70 years old will go from 5% to 22%.
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The projections also start from an increase in nominal GDP between 3.5% and 4%; a rate of inflation around 2%; a employment rate which will go from the current 71% to 79.5% and a unemployment rate which will drop from the current 11.4% to 5.5%, in a context of zero growth or decline in employment in the last years of the period.
With all these things, taking the increase in new pensions for the baby boom generation, and the revaluation of benefits in accordance with the CPI, Escrivá’s ministry estimates that spending on pensions will reach a maximum of 15% of GDP in the 1940s before declining to 14.2% of GDP in 2050. In this period, it is also estimated that income measures will provide on average resources equivalent to 1.8% of GDP each year.