Hernández de Cos corrects Escrivá and raises the extra spending on pensions to 3,500 million euros



The Governor of the Bank of Spain, Pablo Hernandez de Cos, has warned that the upturn in inflation could mean an additional expense in pensions to the one calculated in the budget of about 3,500 million euros. Along the
his intervention in the Budget Committee of the Congress of Deputies
Hernández de Cos warned of “certain risks of upward deviation” in budgeted pension spending. “These risks arise from a possible rebound in inflation in the final months of this year above what is foreseen in the draft PGE,” Hernández de Cos pointed out.

Specifically, spending on pensions could be, according to the Bank of Spain analysis, around 1,500 million more than what is contemplated in the Budget Project for the year 2022. To this possible deviation, we should add the cost of compensation of pensions in 2021, which could be around an additional 2,000 million versus
the 1,900 million that the minister José Luis Escrivá accounted for

Faced with this scenario of higher public spending, the governor of the Bank of Spain stated that «a review of the public pension system is still necessary to guarantee its sustainability ». In addition, Hernández de Cos clarified that this is a process that must be approached with “transparency” so that citizens can “conveniently plan their work and retirement decisions, and consumption and savings.”

According to Hernández de Cos, the transfer to the State of part of the Social Security expenses cleans up this subsector “at the cost of increasing the State’s financial obligations,” with the final result of achieving a ‘zero’ impact on sustainability of public accounts. For this reason, the governor of the Bank of Spain called for a review of the public pension system to guarantee its sustainability.

To the extent that pension spending is financed mainly through intergenerational income transfers, Hernández de Cos clarified that said reform must also be designed taking into account the distribution of costs and benefits between the different generations. “In addition, it is desirable that the system be endowed with the greatest possible transparency and certainty, so that citizens can conveniently plan their work and retirement decisions, and consumption and savings”, he added.

Likewise, the governor of the Bank of Spain made a call to avoid the widespread use of automatic indexing clauses in expenditure items that “could additionally feed the current inflationary process.”

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