Contributor financing retirement benefits
The pension system in Spain is currently facing significant financial challenges, with increasing spending and a deficit in the Social Security system. A panel convened by 'Fin de mes', the economics program of Radio 5 Todo Noticias, discussed the pension system reform and the factors contributing to its current predicament.
Experts such as Javier Díaz Jiménez, José Ignacio Conde-Ruiz, Cándido Méndez, María Eugenia Estenssoro, Alfredo Cardozo, and Santiago Fraschina participated in the discussion.
One of the main concerns is the need for an audit of the Social Security accounts due to missing resources or hidden funds in other budgets or uses that were not intended for pensioners. The panel highlighted that around 30% of pension spending comes from the General State Budget.
The last reform, approved in 2021, linked payments to the Consumer Price Index (CPI) and increased social contributions to pay the pensions of the baby boom generation. However, a baby boom followed by a baby bust is considered the worst scenario for a pay-as-you-go system like Spain's, according to pension expert Javier Díaz Jiménez.
Elma Saiz, the Minister of Social Security, stated that around 200,000 to 250,000 migrant workers will be needed in the coming decades. This is due to the fact that the average contribution gap between Spaniards and immigrants from low-income countries per capita is around 530 euros.
Carmen González expressed concern that low-salary immigrants, who will retire in the future, may not be able to sustain the continuous increase in pensions. On the other hand, Cándido Méndez warned against the portrayal of an intergenerational conflict and emphasized that most Spanish retirees receive a pension below what a worker receives in Sweden, Germany, or Italy.
In 2024, Social Security received almost 166,000 million euros from contributions and over 48,000 million euros from transfers from the State and other administrations. However, the Social Security system registered a deficit of 66,000 million euros in 2024, with current contributions not covering the payment of payrolls.
The debate suggests that one side accuses the young of wasting their salary on non-essential items like Netflix and Ryanair flights, while the other side accuses baby boomers of depleting Social Security and the General State Budget. It is projected that pension spending will reach 225,000 million euros by 2044 according to a study by IESE.
The panel also discussed the possibility of extending the pension calculation period in Spain, which is currently 29 years, with the possibility of removing the two worst. In 2013, a sustainability factor was introduced that would reduce the initial payments of future pensioners because it was estimated that they would live longer, although it was never applied.
Cándido Méndez stated that around 800,000 young graduates left Spain and found work in other European countries due to low-quality and low-paying jobs. This is a concern as these individuals will not be contributing to the pension system in Spain in the future.
In conclusion, the pension system in Spain is facing significant financial challenges, and it is crucial to address these issues to ensure the system's sustainability for future generations. The panel's discussion highlighted the need for reforms, increased contributions, and a more efficient use of resources to address the current deficit and ensure the system's long-term viability.
