Escrivá’s pension reform has a price. Yesterday the European Commission gave you some figures, and they do not coincide with those that, at the time, were set by the previous head of the Ministry of Inclusion and Social Security. The figures handled by Brussels suggest that, in the period 2022-2050, the average spending on pensions will be 15.1% of GDP, and with this percentage an adjustment equivalent to 0.8% would be required, that is , about 11.7 billion euros.
The European Commission estimates that the set of measures adopted will mean an increase in pension system spending of up to 3.3 percentage points of GDP compared to the scenario before the reforms, and that, in 2070, the increase will be five points. In addition, it indicates that average monthly spending will rise to the aforementioned 15.1% of GDP in the period 2022-2050. If a longer period is contemplated, from 2022 to 2070, pension spending would increase on average by 15.6%.
The main element that causes this increase is the new indexation rules, which mean that pensions increase in accordance with inflation, which ensures that pensioners do not lose purchasing power, but in exchange for a high bill. It is followed by the abolition of the stability factor that was established at the time of the Rajoy government and that implied a resounding brake on spending.
These are two elements that were known to drastically increase spending, and to compensate for this, systems were established to increase income, such as increasing contributions to the system, as well as incentives to lengthen the effective retirement age. However, Brussels technicians consider that this compensation is more limited than what the Spanish Government had calculated.
Their calculation is that the revaluation with the CPI and the elimination of the sustainability factor cost more than four points of GDP, while the incentives to delay the effective retirement age only compensate one point.
These are data collected in the report on the impact of aging (Aging report) published yesterday by the European Commission. The report establishes a comparison between pension spending in the previous scenario and the current one, once the reforms have been applied.
In the current scenario, pension spending would reach its highest level in 2050 (17.3% of GDP), and from this peak it would reduce, but only slightly, to reach 16.7% in 2070.
What are the consequences of this increase in spending greater than that planned by the Spanish Government? What is at stake is the activation of the automatic closing mechanism, included in the reform as an essential condition to obtain the endorsement of Brussels, and which foresees acting from certain limits.
The commitment is that spending cannot exceed on average 13.3% of GDP. With the figures from the European Commission, spending on pensions would be 15.1%, a percentage from which the income estimate that Airef will make would be subtracted, 1%, according to its latest calculations.
Therefore, spending would be 0.8% higher than the limit and would lead to this adjustment of 11.7 billion euros. A correction that should be carried out through a plan negotiated with the social agents or, after a certain period, with an increase in social contributions.
It is a forecast, not a certainty, because everything is still pending the final Airef report which, in 2025, will update the income forecast. This is where, from the Ministry of Inclusion and Social Security, they point out that this forecast may be superior in view of the proper functioning of the labor market. In its initial calculations, the ministry pointed out that the average expenditure on pensions until 2050, corrected by new income, would be 12.4% of GDP. Therefore, this percentage would be below the reference to evaluate the sustainability of the system, and it would not be necessary to apply the closure clause.
