An image explains why pensions are not sustainable in Spain

In the future, Spain will not be able to offer pensions as generous as those it offers now. Pensions are already too high for what the country can offer. As we have mentioned, they are the largest item of government spending and they are becoming a black hole that eats up more and more of the budget. But this is not the biggest problem.

There is absolutely no other budget line that can be cut to minimize this problem. Defense spending, transfers to the Catholic Church, political spending, etc. are a trifle compared to what the state spends on pensions. Also with pensions there are not many ways to change the business and improve spending. The administrative cost of social security is ridiculous compared to the volume of pensions managed. But the biggest problem is not the pensions of now, but the pensions of the future.

The population pyramid in Spain and how pensions work

Spain Population Pyramid Eurostat 2020 2040

From time to time in Spain there are manifestations of pensioners complaining that their pensions are scarce, it may be, but the truth is that these pensions are quite generous regarding the salary they received before retiring in the average of rich countries. In Spain they account for 83% of the salary before retiring, compared to 71% in Denmark, 66% in Belgium, 52% in Germany, 37% in Japan or 28% in the United Kingdom.

To this we must add how pensions work in Spain. In Spain, pensions are financed with a tax on the work of current workers and thus the pensions of current pensioners are paid, with the idea that in the future they will receive a pension from future workers. But this is done through a tax on workers who are redistributed among pensioners, the money obtained is not saved or invested for future pensioners and there is no assurance that these generated rights will provide an equivalent pension.

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The population pyramid in Spain clearly shows us that it is not shaped like a pyramid, but rather an urn. Those who are between 35 and 55 years old, see that they occupy a generational space that does not have an equivalent generational replacement. Furthermore, if we compare it with an estimate of the 20-year population, as the Eurostat image does, we see how the pensions of the future are going to be much more difficult to pay. In fact, in 2030 we should already start to have problems with the payment of pensions.

These sections of the population have between ten and thirty years to work on their pensions, in addition this problem was clear for about ten years, with which they would have had between twenty and forty years, more than enough time to be in a good position.

No problem arguments are not acceptable

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Bill Eduardo Garzon, a university professor and brother of the minister of consumption, that we should not worry because in the face of a hypothetical increase in productivity, a decrease in life expectancy and a wave of migration, they would not alter the balance of social security. So your argument basically is that since there are possible good things and we do not have the problem now, we do not have to worry.

This is not true, not at all. Many reports already include immigration, increased productivity, and improved fertility. Furthermore, the university professor’s arguments are weak, at best. First, because the increase in productivity we would have to see it (and I doubt that it will triple), second because an increase in life expectancy is something desirable, the undesirable thing is that people die sooner so that pensions are higher. Thirdly, because our stagnant economy becomes much less interesting to emigrate, on the one hand due to the improvement in the economy of some Latin American, African and Eastern European countries, places where most of the immigration has come from in recent years. . Due to emigration and having to learn a new language and adapt, there are other countries more attractive than Spain.

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In addition, many pessimistic reports on pensions include an improvement in fertility (something that is not happening) and net inflows of immigrants. For example one of the AIREF of 2020 it supposed an entrance of 330,000 annual immigrants between 2020 and 2050 with an increase of the population to 54 million inhabitants. It also warned of problems the Fedea 2018 report. The Spain 2050 report of the current government itself carried out in 2021 spoke of the lack of sustainability of pensions. Also from another from the EAE business school. This year’s reform (increase in social contributions) is out of the calculation and the OECD he has called for a more profound reform of them.

That is to say, every minimally serious report is concerned about the sustainability of pensions. But it is not necessary to go to a sensible report carried out by prestigious economists, some population pyramids that at least in my case I studied in social sciences at the beginning of secondary education and a minimal knowledge of the operation of the pension system, they make us see that there is a problem with them.

What can we do to improve our standard of living in retirement? A few months ago we were telling something about it.

Ask readers What are they doing now to improve their retirement living standards and how old are they?

More information | OTHER, Eurostat

Image | rahego


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