Published on Monday, May 10, 2021

Spain | The pension deficit in times of reform

The public deficit forecasts contained in the 2021–2024 Updated Stability Program provided by the Spanish government to the European Commission have recently been disclosed. For 2021, the collective target deficit for the Public Administrations is 8.4% of GDP, which will progressively decrease to reach 3.2% in 2024.

Key points

  • Key points:
  • The State will assume the bulk of the deficit during these years. Social Security, for its part, is expected to reach a deficit of 1.5% in 2021, which will progressively decrease to reach 0.7% in 2024.
  • The 2021–2024 Updated Stability Program anticipates that nominal pension expenditure will increase by an average of 4.1% per year. During this period, pensions are expected to be updated in accordance with the Consumer Price Index (CPI).
  • The Plan also estimates that social contributions will grow by 1.8% in 2021 and by an average of 5% between 2022 and 2024. Assuming that pension system revenues grow at these rates, capital will increase from 127.7 billion in 2020 to 150.5 in 2024.
  • It may be concluded that, based on the forecasts contained in the Stability Program and exercising due caution, the expected economic recovery will likely be insufficient to reduce the deficit in the pension system, which will increase from 30.6 billion in 2020 to 35.2 in 2024.
  • In the coming months, Spain will need to implement reforms to comply with the conditions placed on European Next Generation EU (NGEU) funds. Given the existing structural deficit and the forecasts for increased pension expenditure in the coming decades, it will be necessary to gradually introduce mechanisms to curb its growth.

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