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Published on Wednesday, October 28, 2020

Spain | Pension reform and COVID-19

Recently, the COVID-19 crisis has highlighted how the Spanish pension system's financial sustainability problems are worsening. The Ministry of Social Security is predicting a GDP deficit of 4.1% for 2020.

Key points

  • Key points:
  • The crisis caused by the pandemic has not, for the time being, led to fiscal adjustments being made as in the previous crisis, allowing the public deficit to increase significantly. This has meant that ambitious reforms of the pension system are not being proposed, in fact, it is quite the contrary.
  • In 2019, before COVID-19, with the pension system sitting at a deficit of EUR 16.793 billion (1.3% of GDP), we found that for every person aged 65 or over (potentially receiving a pension) there were 3.3 people of working age (aged 16 to 64) potentially contributing.
  • On the other hand, the pension system has a significant actuarial deficit, which means that each participant receives a higher pension amount from the system than the contributions they have made throughout their life.
  • The demographic situation in the past favored the generation of sustained surpluses over time. However, these were not provided for and were spent on other functions during the current financial year, but they generated duties that must now be funded.
  • Over this year and next year, the Social Security balance sheet will display a record deficit caused by COVID-19, but it is not just the fault of the pandemic. However, the proposals being published in the media, which are included in the Toledo Pact, are to continue taking measures that will have limited impact.

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