.jpg)
Europe has examined the Spanish pension system in light of the latest Joint Report on Pensions published by the EU's Social Protection and Policy Committees. The conclusions are clear: Brussels acknowledges the current robustness of the Spanish pension system, but is calling on the Government to deliver on the promised pension reforms in order to secure their long-term viability.
The reform, which the Government pledged to its European partners before the end of 2010, will now be delayed until the following spring. But what will this reform actually involve?
There are several points worth addressing: first, the findings of the Report itself; and second, the way in which things are being handled.
Let us start with the Report. Two developments have been highlighted: the reduction in the poverty rate among those aged 65 and over, and the increase in minimum pensions over recent years.
The Report's conclusions on the health of the Spanish pension system indicate that, for now, it is an efficient and well-functioning system. However, due to the demographic changes on the horizon, compounded by the fact that a period of economic hardship still lies ahead, if the system is not reformed, it will become unviable by 2030.
As for how things have been handled: it appears that substantive proposals were put before the European Commission, specifically, a framework document submitted last January, while within Spain the debate over a reform that was not considered imminent was being played down. Now that ECOFIN (the Council of EU Economics and Finance Ministers) has weighed in on the reform proposed by the Spanish Government, statements are emerging to the effect that 'agreement will be reached with trade unions and social partners'. One might be forgiven for finding the sequence of events somewhat opaque.
Yet one thing is clear: even if one takes issue with how things have been done, certain facts are undeniable. This is fundamentally a demographic problem, one of avoiding a deficit and of the need to guarantee the future of pension entitlements. Now that we are under scrutiny from the European Commission, we must not lose sight of what is at stake: not only future pensions, but also the confidence of the markets and the restoration of investor trust in the Spanish economy.
Proposed measures for pension system reform:
The reform would centre on two main measures, both of which remain controversial and difficult to agree upon:
- Raising the statutory retirement age by two years, from 65 to 67.
- Extending the pension calculation period by ten years, from 15 to 25 years of contributions.
However, the report presented on 17 November, whilst welcoming these two measures, warns that they are insufficient on their own. Additional complementary measures will need to be developed alongside them.
The data underpinning this reform:
From 2030 onwards, driven by rising life expectancy and significant population ageing, pension expenditure is projected to increase by 6.7% of GDP. The number of pensioners is expected to double between 2010 and 2040. These figures are what justify measures to discourage early retirement and the gradual transition of the retirement age from 65 to 67 that has been proposed.
Over the coming months, negotiations with the social partners will need to take place to determine whether the Government can reach the agreements it is seeking. In parallel, between now and next spring, when the reform is expected to be finalised, the complementary measures that will accompany those already announced must be defined.
