MadridInflation has put the pension system in the spotlight. Following the reform of the government of Pedro Sánchez, benefits are revalued according to the consumer price index (CPI) to ensure the purchasing power of retirees. The measure was already approved by the socialist government of José Luis Rodríguez Zapatero, but then overturned by the executive of Mariano Rajoy (PP), who in return – and with the aim of cutting the state deficit – approved the sustainability factor: since then pensions would be revalued by at most 0.25%, regardless of inflation.
With the reform, pensions have increased by 2.5% this year. The increase is the result of averaging year-on-year CPI rates for the 12 months prior to November. That is, this year the calculation was the result of the average between December 2020 and November 2021. Thus, to calculate the revaluation of 2023 will take into account inflation between December 2021 and November 2022.
Now, in the context of an upward spiral of prices – the CPI for March was close to 10% – this calculation has raised alarms among supervisors about the impact that average inflation may have on the rise of the pensions and, consequently, in the expense and the deficit that can leave to the public accounts of the State, and in particular to the box of the Social Security.
As an example, the revaluation of pensions by 2.5% meant an additional expenditure of 3 billion euros for the central government. In total, 171,165 million euros were allocated from the general state budget (4.8% more than in 2021) to cover the total benefits that make up the system beyond retirements.
In addition, the compensatory payment of pensions has been added this year or “paguilla“, that is, the payment that the government has paid for the deviation of prices with respect to the revaluation of pensions in 2021, when they increased by only 0.9%. The cost of this compensatory payment was 2 billion of euros.
For the time being, taking into account the inflation of recent months, since December last year until now the resulting average rate has stood at 6%, more than double the last figure used to revalue aid. . According to the Bank of Spain – which estimates an average CPI of 7.5% in 2022 – each percentage point of rising inflation will translate into 1.8 billion euros in public spending. “The evolution of the deficit in 2023 will be more unfavorable because pensions have been indexed to inflation. It is a negative impact,” says the body, which, while forecasting a deficit of 5% by 2022, estimates that will be higher next year, 5.2% of Spanish gross domestic product (GDP, the indicator that measures the size of an economy). The other reason is that in 2022 the revaluation of pensions has not moved to the deficit because “it has not been so high [la pujada] and this year revenues have prevailed over expenses ”. The Independent Authority for Fiscal Responsibility (Airef) has expressed the same opinion.
It is precisely in this context that some study centers have begun to draw up their own calculations. The Foundation for Applied Economics Studies (Fedea) –el think tank of the main Spanish banks and large companies – has calculated that the expenditure of the system will climb to 188.5 billion (an increase of 8.4%) of euros next year and will reach 14% of GDP. The study, carried out by the professor of economics at the Universidad Rey Juan Carlos Miguel Ángel García, takes as a reference some “prudent” hypotheses: an average annual rate of inflation of 6%, to which it adds a 1, 1% due to the increase in the number of pensions next year and 1.3% due to the substitution effect (pensions entering the system are higher than those leaving); a total of 8.4%. In other words, not only will there be more inflation, but also more pensioners – the generation of baby boomers, the most numerous – and the payments will be higher. “Expenditure is rising, but so are prices and GDP. In relative terms, it should not be so serious,” said UB economics professor Montserrat Guillén.
The Spanish government maintains that the “commitment to pensioners is strong”, insisted a few days ago the Minister of Finance, María Jesús Montero. “A law has been agreed that proposes the revaluation in relation to the CPI and we will comply with it,” said the minister, who added that the government is working to keep average inflation “far” from the figures that are being recorded. days and set an example of the energy measures that incorporate the shock plan to deal with the economic consequences of the war in Ukraine. “The revaluation of pensions according to inflation is guaranteed,” said Social Security Minister Jose Luis Escrivá.
In addition, in the eyes of the Bank of Spain, the intergenerational equity mechanism approved by the Spanish government will not guarantee the sustainability of the system. This mechanism, agreed between the Spanish government and the majority unions, but without the approval of the employer, aims to fill the pension fund and cover the expense once the retirees retire. baby boomers,. Contributions will increase by 0.6 points over ten years, a measure that will begin to be applied from 2023 until 2032. The increase will be finalist and must feed the Reserve Fund (the Ministry of Social Security estimates to obtain a up to 40 billion) to meet the cost of pensions once this generation retires.
To this measure is added the transfer by the State to cover the so-called “improper expenses” that have so far been assumed by the Social Security. This year it has been 18.4 billion euros and is estimated to be about 22 billion next year. However, according to García, the income from contributions will not be enough to cover the expense. “The clearest thing is that if salaries don’t go up at all, contributions don’t go up, so you won’t have enough to pay your current retirement pensions and you’ll need to inject more money,” Guillen said. wages will rise and stay, and if inflation falls, pensions will not rise as much, so it will recover. ”