The Bank of Spain warns that mutilating the pension reform of 2013 will have a high cost for Social Security. Their calculations amount to 1.9 points of GDP for 2030 and 3.4 points of GDP for 2050. To give an idea, in euros today would be an additional 22,000 million euros of spending in 2030 and 40,000 million in 2050. Por this reason, in an analysis published on Monday claims that "additional actions that increase revenue or reduce system costs, in order to ensure its financial sustainability" are needed.
The 2013 reform approved by the PP Government was based on two axes: on the one hand, it unlinked the updates of the CPI benefits. Instead of taking inflation to revalue them, I fixed a formula that linked improvements to the status of Social Security accounts. As the forecast is for the system to be deficit for years, the increases would only be for the minimum fixed at 0.25% for years. "The projections would imply an annual revaluation of pensions to the minimum established rate of 0.25% for much of the next three decades, which, in a context of an inflation rate of around 2% -the mid-term reference of the ECB-, would lead to a gradual erosion of the purchasing power of the pension throughout the life of its beneficiary ", says the document.
The other leg of the 2013 reform was the so-called sustainability factor, which linked the initial pension of the new retiree to their life expectancy, so that the higher this minor would be the initial benefit. This element was justified because the pensioner would charge for more years and was expected to enter into force in 2019.
The two measures "contributed to significantly improve the long-term sustainability of the system, as reflected in projections of pension spending for the Spanish economy included in the latest report on aging of the European Commission," the Spanish supervisor's report states.
However, the Bank of Spain itself recognizes that this reform also entailed problems for the beneficiaries: "The counterpart of this improvement in sustainability would be a progressive decrease in the value of the average pension in relation to the average salary". Or what is the same, pensioners were going to lose purchasing power with respect to workers. In this way, the opposite of what happened with the crisis would happen, when the value of the benefits was preserved while the other incomes fell, as highlighted by the latest OECD reports on pensions.
Linked to the IPC in 2018 and 2019
However, in order to approve the 2018 Budgets, the Government of Mariano Rajoy agreed with the PNV to delay the entry into force of the sustainability factor to 2023 and to revalue pensions above 0.25% that dictated the reform of 2013. It was agreed a generalized rise of 1.6% for 2018 and another for 2019. Widowhood was also improved. And the minimum and non-contributory ones went up an additional 1.4% in 2018. At the moment, the Government of Sanchez has promised to raise them this year with the CPI. And the Pact of Toledo, the commission where political parties agree on reforms for pensions, has recommended that updates are made according to observed inflation. As the Bank of Spain recalls, the current Government itself estimates that the revaluation measures will involve some 2,500 million more spending in 2018 and some 5,300 million more in 2019. In addition, the supervisory body maintains that delaying the sustainability factor, which links the pensions to life expectancy, implies an increase in annual expenditure on pensions of 0.1 points of GDP (about 1,200 million in euros today) over the next decade, and 0.3% points (about 3,600 million euros in euros). today) during the following decade.
Consequently, if pensions start to rise with the CPI, and if the sustainability factor is delayed to 2023, "it will show an increase in spending of 1.9 points of GDP in 2030 and 3.4 points in 2050". Without taking further measures, this would mean that the current pension deficit will almost double in 2030 and triple by 2050. These calculations are made with the growth and demographic forecasts made by the European Commission.