One of the hottest topics on the economic panorama in Spain is, surely along with housing, the long-term sustainability of the pension system. It is a topic that at least generates doubts among economists and citizens of our country. Hence, we even seek to compare the Spanish pension system with that of other countries, such as the case of Estonia, to see how others do it and what forecasts they have for the future.
We have already seen how some economic experts of the stature of Gonzalo Bernardos question the functioning of pensions in Spain, so the opinion of these specialists becomes more relevant than ever. This is the case of Antón Díez, financial expert and general director of N26 for Spain and Portugal, who wanted to analyze the main factors that negatively affect the viability of the pension system in Spain currently and has done so in an intervention on the podcast ‘The meaning of the beer’.
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The aging of the population, the retirement of the ‘baby boom’ generation and the increase in spending expected for the coming decades are undoubtedly 3 of the factors that most affect the sustainability of the pension system. For the former JP Morgan banker, the main problem with pensions in Spain is that there are more and more people retiring and fewer workers contributing to maintain the system and keep it the same.
“What is observed today is that the public pension system is quite stressed, because in the end we have an inverted demographic pyramid in which there are many people retiring, accessing the pension system and there are few people contributing,” details the financial expert.
Three factors that explain the increase in pension spending
The first reason that Díez highlighted is the retirement of the largest generations. From 2024, more and more citizens reach the age of 67, a determining age to access the public pension. As explained by the financial expert, currently about 500,000 people reach that age each year, although the number will continue to grow gradually until 2044, when it could be around 750,000 people annually. This increase will have a strong economic impact on the system. “This is already going to mean a 40% cost increase in real terms,” he says.
Added to this scenario is the revaluation of pensions to prevent retirees from losing purchasing power due to inflation.
Another factor that the expert mentioned is the increase in life expectancy. If the new retirees live longer, the State must pay the benefit for more years. Currently, those who reach the age of 67 have an approximate life expectancy of 23 additional years. However, the studies cited during the interview suggest that this figure could rise to 26 years.
Longer careers and higher salaries
The third element that, according to Antón Díez, increases pressure on the system is related to the work trajectories of those who retire now. Many of these people have accumulated more years of work and have enjoyed better salaries than previous generations. This translates into higher contribution bases and, therefore, also higher average pensions.
“It adds an additional 40% cost and those who are turning 67 are one of the generations that has worked with greater productivity in Spain,” explains Díez. “They have worked for many years and have worked with very good salaries. So, as they have contributed corresponding to their good work and good salaries, they receive higher average pensions than those that have been given until now,” he adds.
The combination of a greater number of retirees, a longer life and higher benefits requires strengthening the financing of the public pension system. “Now those numbers don’t appear because in the end you have a base of contributors that is much smaller than the base of pensioners. Other mechanisms were being used to continue paying them and a large part of it is transfers from the State to Social Security,” he explains.