October 24, 2020

Airef estimates that spending on pensions will raise public debt by more than 600,000 million until 2050




The Independent Authority for Fiscal Responsibility (Airef) has updated its demographic and pension spending forecasts that it made in 2019 and predicts that the disbursement in retirement will be higher. For the year 2050, spending on this item will be 14.2% of GDP, one point higher than in the previous estimate and a rise of 3.3 points compared to the current 10.9%. This supposes a increase of 36,000 million euros in fifty years.

What has changed compared to the forecast for 2019? «A part of this difference, 0.3 points, is due to the difference with the starting point due to increases in pension spending due to measures not contemplated in the Opinion such as revaluation above the CPI of non-contributory pensions and minimum supplements», Collects the body, led by Cristina Herrero who succeeded the now Minister of Social Security, José Luis Escrivá.

Disbursement of pensions depends “fundamentally” on three factors: migratory flows, fertility rate and mortality. Airef predicts that by 2050 Spain will have a population of 54 million people, seven more than at present, with average annual net inflows of 330,000 immigrants between 2020 and 2050 that will offset a negative vegetative balance –difference between births and deaths–. The maintenance of current immigration policies is assumed and it is projected that by 2050 18% of the population will be immigrants.

Airef’s projection is higher than that of the INE (with an annual average of 219,000 net entries per year) or Eurostat (197,000), but it must be taken into account that the provisional data for 2019 reflects 450,000 net immigrants, more than from 275,000 to those estimated in the opinion for that year.

Despite the fact that Airef predicts that the Covid will cut by one year in 2020 the Life expectancy –Something unprecedented in recent history–, for 2050 it is expected to continue to rise and reach 86.8 years. The fertility rate will increase from 1.2 children to 1.4 in 2050. What will be the impact of the coronavirus crisis in this regard? The effect is uncertain, according to Airef, according to the available literature.

Furthermore, Airef believes that structural deficit, 2% of GDP, will require reforms. If the effective retirement age is increased from 64.1 to 66 years and the contribution career from 25 to 35 years, saving would be 1.4 points of GDP and public debt would “only” grow by 40.2 points of GDP. GDP. An assumption that is not incorporated into the central scenario of Airef, which contemplates that the 2011 reform is applied in addition to the sustainability factor – which adjusts the initial pension to economic growth, deficit or life expectancy. Under this hypothesis, the most probable for Airef, public debt increases by 56.3 points. If the sustainability factor were eliminated, pension spending would increase to 15.1% of GDP in 2050 and debt would increase by 65.9 points.

It should be borne in mind that the economic assumptions that Airef takes into account is that unemployment in Spain is approaching 7% by 2050. «The unemployment rate it would gradually decline, in line with the decline in the working-age population, until reaching a rate close to 7% of the active population in 2050. On the other hand, productivity would grow 0.9% per year on average, equal to the average of the last two decades (2000-2019); its trajectory assumes convergence in 2035 to 1.1% from current values ​​close to zero, ”the report states.

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