The pension reform that the Government has just approved will not make the system sustainable given the aging of the population that is expected in Spain in the coming decades. The Fiscal Authority (Airef) questioned this Friday the project of the Minister of Social Security, José Luis Escrivá, announcing that this reform will cause the public deficit to increase by 1.1 points of GDP in 2050 (some 15,000 million up to 8.1%) and one more point in 2070 (up to 7%) compared to what would happen in a scenario without this reform and with the IRP and the sustainability factor (the model approved by the Government of Mariano Rajoy and suspended in 2018).
In their report on the long-term sustainability of Public Administrations and the impact of demography, they indicate that pension spending will increase by 2.6 points (about 30,000 million) from its current rate (13.6%), until 2050 , when it will close with a level of 16.2% of GDP. This increase in spending is mainly explained by demographic factors, indicates Airef. And in the longer term, they calculate that pension spending will be 13.9% of GDP even in 2070, which confirms that the reform of Escrivá -who was president of this body from 2014 to 2020, when he was appointed minister- will not be able to offset the higher expenses against income that will also rise but not to that level.
Specifically, Airef calculations indicate that spending will rise by 2.4% by 2050, especially due to the revaluation of pensions with the CPI and the elimination of the sustainability factor. Revenues will increase by 1.3%, mainly due to the reform of contributions in the self-employed system and the evolution of the maximum contribution bases. All in all, the impact of the reform on the deficit is 1.1 points in 2050.
The debt skyrockets
In addition, this increase in spending on pensions and also on dependency and healthcare due to population aging will mean that -without economic policy measures or fiscal rules- it will lead to public debt reaching 110% in 2035, which will continue to rise to 147% in 2050. and 186% in 2070, the agency’s last projection year.
“The debt will register a turning point in 2030, when it will begin a very upward path,” explained the president of Airef, Cristina Herrero, during the presentation of the report.
All because the demographic balance is very negative in Spain, with a birth rate that currently (1.19 children per woman) is one of the lowest in the world, with regions where the rate is already less than one, such as Asturias. It is much lower than the average for the euro zone, of 1.5 children per woman, and it is also below the 2 children that, according to an INE survey, is the ideal for the average of Spanish women.
On the other hand, life expectancy in Spain is one of the highest in the world, especially in the case of women, and Airef estimates that it will rise in the coming decades to reach 89.1 years in 2070, which will multiply dependency, health and pension expenses.
Escrivá denies the criticism
Minister José Luis Escrivá denied that the Airef report is a criticism of its reform. On the contrary, he expressed his satisfaction with the recommendations he makes to the Government, which, in his opinion, are “absolutely reasonable and sensible.” In the same way, he maintained that his estimated projections of long-term spending and income “match” his numbers in some of the scenarios he proposes, since others have been “out of date” due to the effects of the labor reform and the better economic dynamics. “My assessment of the report is positive,” he concluded.
Beyond pensions, the evolution of demographic aging will also have an impact on spending on health and education. In health, spending would stabilize at around 8.4% of GDP from 2049, while in long-term care it would stabilize at around 2% around 2060. On the contrary, in education there was a drop in spending up to 3.6% in 2041 and a subsequent recovery to 4.2% of GDP in 2070, according to Airef.
One solution: delay retirement
The president acknowledged that making a pension reform “is not easy”, but that her role from Airef is to analyze the sustainability of the system. And in this sense, she stressed that this reform “increases the deficit and therefore increases the debt.”
Herrero summarized the two factors that most increase the cost of the reform: the updating of pensions according to the CPI and the elimination of the sustainability factor. And since the Pact of Toledo agreed to the increase with the CPI, it indicated that one of the ways to have increased income is to delay the retirement age or increase the number of years necessary to collect 100% of the retirement, something that this reform has not touched