Spain is to pay workers to postpone retirement as part of a pensions reform strategy that analysts warn does not go far enough to cut a huge deficit in the system.
With nearly 30 billion euros (US$36 billion) of annual losses last year and rising, Spain’s social security budget is one of the biggest contributors to the country’s ballooning public deficit.
The European Commission has long demanded that Spain reform its pension system and has made it a condition for accessing EU economic recovery funds.
Under a planned reform unveiled earlier this month that aims to get more people to work longer, Spain is to give checks worth up to 12,000 euros per year to retirement-age workers who postpone their retirement.
Retiring early, on the other hand, would lead to a reduction in monthly payments.
However, the reform, which must still be approved by Spain’s fragmented parliament, would also restore the indexation of pensions to inflation.
“Pensioners will no longer have to worry about the evolution of their pension,” Spanish Minister of Finance and Civil Service Maria Jesus Montero last week told a news conference after the Cabinet approved the reform.
A conservative government eliminated indexation in 2013, although it in 2018 hiked pensions in line with inflation following protests by pensioners against their loss of purchasing power.
The 2013 reform would also gradually increase the retirement age to 67 in 2027 from about 65.
Rafael Pampillon, head of the economics department at Madrid’s IE Business School, said that raising pensions in line with inflation every year was “outrageous.”
“The system is not sustainable. Pensions should be frozen,” he told reporters.
Demographics complicate the picture. Spanish has one of the world’s longest life expectancies — about 83 years, according to the WHO — and Europe’s lowest fertility rate after Malta’s.
As a result, the number of people under the age of 25 who enter the labor market each year is 30 percent less than those over 40, Pampillon said.
Javier Diaz Gimenez, an economics professor at the IESE Business School, said that while other southern European nations like Italy and Greece face the same problem, “in Spain reform has been put off, the consensus has been to deny the problem.”
“People live longer, therefore they cost more, therefore their pensions should be lowered. That is hard, because it means not keeping a promise to people who are about to retire” and who expect a certain sum after paying into the system for years, he added.
The Spanish government has said that details of the planned pension reform would be ironed out in the autumn.
It would have to adjust payments based on available funds and extended life expectancy.
Spanish Minister of Inclusion, Social Security and Migration Jose Luis Escriva has sparked an uproar by suggesting that baby boomers would eventually have to accept lower pensions, and quickly backtracked.
With a general election expected in two years, no party wants to risk alienating the large block of older voters by proposing pension cuts, Pampillon said.
“Everything is up in the air,” he added.
Jordi Fabregat of the Esade business school said part of the problem is that Spain offers generous public pensions, with monthly payments amounting to 80 percent of a worker’s final salary, compared with an average of 55 percent for all of Europe.
“There is not the habit in Spain of saving for retirement,” he added.
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