July 28, 2021

The IMF warns that linking pensions to the IPC puts the system at risk

The IMF warns that linking pensions to the IPC puts the system at risk


The International Monetary Fund (IMF) states that in Spain a "package of measures" in terms of pensions that is "sustainable and integral to alleviate the tensions that afflict the system" is required. PTherefore, it considers that the recommendations of the parliamentary commission of the Toledo Pact consisting in linking the increase of pensions to an indicator of purchasing power, specifically the CPI, "should not be translated into legislative measures that are not part of a integral package ".

This is what the IMF says in its report 'Final Declaration of the Mission of the Consultation of Article IV of 2018' published this Wednesday, in which it is ensured that "an ad hoc adjustment of the benefits could jeopardize the financial sustainability of the System".

Specific, it is estimated that linking the revaluation of pensions to inflation on a permanent basis would add between 3% and 4% of GDP to the disbursement for pensions by 2050, according to the current demographic and macroeconomic forecasts. "An increase of such magnitude in structural spending has to be counteracted by other structural measures," he adds.

Among the instruments available, the IMF cites, for example, the increase in the minimum contribution for self-employed workers and the maximum income subject to contribution, as well as directly linking the legal retirement age to life expectancy.

"Unless there is a full correspondence between the increase in income and the additional expense foreseen, a future reduction in pensions can not be avoided, even if it is moderate," he warns.

In this way, he sees "it is necessary to consider the distributive consequences of all possible measures". In addition, he emphasizes, "it is essential to be completely transparent about the effect of changes in the pension system, so that future retirees can make informed decisions about their work life and their savings."

REFORMS OF 2011 AND 2013

The document states that the pension reforms of 2011 and 2013 "have been questioned", and stresses that the pension system has protected the older generation "in the face of the worst impacts of the crisis, by allowing increases in purchasing power that significantly reduced the poverty of the older population. "

In any case, recognizes that the pension system "faces challenges from now on," adding that "the crisis has exacerbated the high rate of unemployment among young people, leaving a mark on their income prospects."

Looking ahead, the IMF emphasizes, the aging of the population means that the pension system will face the challenge that fewer contributors will have to finance a growing number of retirees.

Past reforms, exposes the Fund, responded with "appropriate measures "from the financial point of view to relieve the pressure on the pension system, but the expected reduction in future benefits "has called into question the social acceptability of the reforms".

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