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BBVA Research proposes the creation of 3 monthly updatable indicators that help to understand the evolution of the Spanish pension system and the problems that arise. The first indicator deals with "financial sustainability (ISF)." The second indicator is "benefit rate," while the third indicator measures the public's senti…
The diagnosis of the system's current problems is well known. Since the start of the 2008 financial crisis, pension spending has increased by 4% on average annually, whilst earnings have stagnated—or even decreased—as a result of a 17% fall in employment.
The Spanish pension system is perfectly workable and sustainable, provided that it adapts to ongoing economic, social and demographic changes in Spanish society.
Distributive pension systems such as Spain’s are based on an implied inter-generational contract between workers and pensioners. A contract which in addition to being sustainable in the long term and providing adequate pensions, must also be balanced and efficient. Without sustainability, adequacy cannot be assured.
The negotiation of the Spanish National Budget has restored the updating of pensions with the inflation for 2018 and 2019 and has delayed the entry into force of the Sustainability Factor (FS from its Spanish initials) until 2023. Although it would be wise to be prudent and wait for the recommendations of the Toledo Pact.
Last week, the budget balance of Spanish public administrations and the situation of the Social Security accounts at 2017 year-end were released. This very useful information can be used to update the change in various components of the theoretical Pension Revaluation Index (IRP from its Spanish initials) for 2018.
Pensions are again at the heart of an intense debate. Adjustment for inflation and the repeal of the 2011 and 2013 reforms are among the demands that are putting the sustainability of the system, and consequently the sufficiency of future pensions, at risk.
In the last few weeks, the debate on private savings as an instrument to supplement public pensions has again intensified. Although this has always been a topic for discussion and analysis, the recent cause was the royal decree that will enable the amount saved in pension plans to be redeemed after 10 years.