The European Commission has issued a warning to Spain regarding its pension reform, stating that the country needs to make a GDP adjustment of 0.8% annually between 2026 and 2030 in order to sustain the pension system. A new report from the Fedea analysis center predicts that without measures, the cut could range between 0.6 and 1.1 points of GDP, resulting in an increase in contribution rates of 2.8 to 3.8 percentage points.
The upcoming review of the pension system’s sustainability in 2024 is crucial for ensuring that retirement expenses do not exceed a set threshold of 13.3% of GDP between 2022 and 2050. The Ageing Report prepared by the European Commission plays a significant role in determining necessary corrections to the system, predicting higher spending on pensions which may require adjustments to income or expenses in the pension system.
Fedea’s analysis highlights discrepancies between Brussels’ projections and those of the Spanish government, particularly with regards to spending on pensions. The report suggests that design flaws in the pension reform introduced in 2020 may pose challenges to public finances, as well as a deficit in the Social Security System which indicates continued adjustments are needed for financial sustainability.
Experts anticipate fluctuations in the contributory deficit of the Social Security System influenced by factors such as economic cycles and policy reforms. Social contributions and pension expenses are expected to impact its balance, with potential for deficit reduction if contributory income continues to grow. Ongoing monitoring and adjustment will be crucial for addressing financial challenges facing the pension system.
Moving forward, it is clear that Spain must take action to address these concerns if it wants to ensure that its pension system remains financially sustainable over time