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Spain | A step backward in the equity and contributivity of the pension system

Published on Monday, November 15, 2021

Spain | A step backward in the equity and contributivity of the pension system

The pension system reforms carried out up to now, and the latest proposals we are learning of, take us further away, rather than closer to, what other European countries have gradually done—and continue to do—to ensure the sustainability of their public pension schemes.

Key points

  • Key points:
  • The first phase of Spanish pension system reform, which is currently going through Congress, opts among other things to link pensions to the CPI, with the forecast deficit from this measure (around 3 points of GDP, to which must also be added a further 2 points for the current contributory deficit) being shifted onto the state.
  • It also includes the removal of the Sustainability Factor—which adjusted initial pensions for the increase in life expectancy, corrected early retirement coefficients and incentivized delaying retirement—with little potential cost saving.
  • For the second phase, we have just discovered the proposals for the “Intergenerational Equity Factor” that will replace the Sustainability Factor — which was originally given this exact same name in the expert committee's report.
  • According to the latest available information, it is proposed to raise contributions by 0.6 points over ten years—between 2023 and 2032—with the aim of increasing the provisions of the Social Security Reserve Fund (popularly known as the "pensions piggy bank"), which currently amounts to over 2 billon euros.
  • The new mechanism will not improve either the sustainability or the equity of the pension system, and reduces its contributivity, passing on a large part of the burden of expenditure onto younger generations, who will probably have to face lower pension replacement rates (average pension/average salary) and greater indebtedness.

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