June 24, 2021

Experts look to Sweden to get the pension system out of its hole – La Provincia


The public pension model falters in Spain because of the demographic evolution and the financial imbalance between the decreasing number of contributions, job insecurity and the payment of new retirements, and intensifies the debate on the reforms that must be articulated in the short and medium term to guarantee its sustainability. On the shared idea that the current system deficit of 1.5% of GDP is unsustainable, the so-called 'Swedish model' or 'notional accounts' is presented as a viable and financially and socially balanced alternative, based on what they advocate several of the experts who yesterday participated in a conference organized by BBVA in Madrid.

The model on which they have placed the magnifying glass consists, basically, of writing down in a virtual account the contributions of each worker updating their value based on different variables so that the pension results from dividing the accumulated balance during the working life between the hope of estimated life at the time of retirement. This calculation system would not only guarantee the financial sustainability of the Spanish model, but it would also be a balanced formula, from the generational point of view, of assuming new job horizons.

The first to bet on this system yesterday was its own creator, Edward Palmer, who established the system of capitalization of quotes in 1999 in Sweden and successfully exported to Italy, Portugal, Norway or Finland. But he was seconded by other experts such as José Antonio Arce and Rafael Domenech, both integrated into the BBVA Pension Institute team. "It is not only possible to assume a model of notional accounts, but it is absolutely necessary," Domenech said emphatically, which also marks the transition period from the current model to this one to ten years.

The BBVA expert, in the face of what some critics argue, says that "the complementary capitalization system such as Sweden has can also be public, there is nothing to prevent it." According to him, "in a world of digital transformation in which people go to work in many companies throughout longer working careers, the solution happens because that complementary account is a Social Security number in the that any company is making contributions and the worker decides if he wants to be managed by Social Security itself, its union or its financial institution. "

Domenech said that the Swedish model "is fair from the generational point of view", and is flexible because each worker can choose their work horizon, the years they want to contribute and the amount of their pension depending on it. In any case, "this has to be compatible, as is the case in Sweden and other countries, with a minimum public pension for all workers regardless of the contribution time."

If reforms are not already undertaken, the panorama drawn by all experts on the future of pensions is bleak. The executive director of BBVA and global head of Economy and Institutional Relations, José Manuel García-Páramo, said that among the budgetary measures to finance pensions would be a possible increase in taxes and contributions, or an adjustment in the level of pensions, although an improvement in public management was pointed out as the best solution so as to legitimize possible increases in the tax burden. The bank manager said that "social contributions will never be able to finance pension spending anymore," and considered that, or is faced with an increase in the number of affiliates, which amounted to 28 million people, or by means of a "readjustment of the cost".

On the other hand, the general director of Economy and Statistics of the Bank of Spain, Oscar Arce, insisted on the need to carry out draft reforms to guarantee the viability of the public pension system, warning at the same time that it will foreseeably be needed " adjustments "both on the revenue side and on the expense side. In his opinion, the reforms of 2011 and 2013 meant "substantial progress" to ensure financial sustainability, but the suspension of some of its elements in recent years, such as the sustainability factor and the Pension Revaluation Index, it calls into question the financial viability in the medium and long term and believes it is necessary to achieve "broad agreements" to guarantee its social viability.

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