The pension reform designed by Minister José Luis Escrivá has not served to solve the main problem of the system: putting an end to the deficit that has accumulated for more than a decade and balancing the Social Security accounts. That is to say, it has failed in its ultimate goal, which was none other than achieving sustainability. This is estimated by the Foundation for Applied Economics Studies (Fedea) in a report published this Monday, in which it makes an amendment to the entire pension spending projections that the Ministry of Social Security recently sent to the European Commission and predicts that new contribution increases or other adjustment measures will be necessary to balance the accounts; and very soon, in just two years.
This study prepared by 16 renowned pension experts attacks the forecasts made by Escrivá and calls them “excessively optimistic”, “not very credible”, “not sufficiently documented” and “implausible”. The results shown by the projections of both are very different. Thus, while the ministry predicts that the reform as a whole will have a moderate effect on the budget balance of the pension system, which would reach six tenths of a point of GDP in 2050 and would be practically zero on average between 2022 and 2050, the calculations of Fedea point to a “much more intense deterioration” of such balance, which would be around one and a half points on average and would exceed 3.5 points in 2050.
More specifically, Escrivá predicts an average expenditure of 14.20% of GDP over the coming decades, which will reach 14.66% in 2050 and that, furthermore, if the income that would be obtained with the measures implemented is discounted, this expenditure would fall to 12.4%. The calculations of this ‘think tank’, on the contrary, point to pension spending in 2050 that will be close to 18% of GDP and will exceed 15% during the period 2022-2050. Thus, they warn of a “substantial growth” in pension spending net of new income, which would be around 1.5 points of GDP on average between 2022 and 2050, and would exceed 3.5 points in 2050.
These results far exceed the limits set by the corrective mechanism included in the pension reform, which expressly establishes that it will be activated when the difference between pension spending and the income expected with the new measures exceeds an average of 13, 3% of GDP.
In the opinion of this group of economists, the safeguard clause of the intergenerational equity mechanism (MEI) “is already fulfilled today”, which will imply “a significant increase in contribution rates” when the review comes, that is, within two years. In this regard, Fedea also warns that, given its already high level, as well as the future increases contemplated by the reform for the coming years, an additional increase in contributions to cover the growing deficit of the public pension system “could have effects adverse effects on potential growth, employment, productivity and, ultimately, on well-being.
Different projections
The strong differences between both analyzes are due to the fact that the Ministry’s projections “are based on more favorable demographic and macroeconomic assumptions than those used by other institutions, as well as on estimates that are not sufficiently documented and sometimes not very credible of the budgetary effects of some of the the measures of the recent reform,” according to the report. Thus, they start from more favorable assumptions regarding the growth of GDP, employment and productivity; as well as fertility, immigration or life expectancy. Furthermore, the main differences are found in the impact of incentives for delayed retirement, the reform of the Special Regime for Self-Employed Workers (RETA) and the improvement of minimum pensions.
In the first two cases, the discrepancy is due, at least in part, to the fact that the Ministry’s projections “do not include” the induced effects on future spending on pensions from the incentives to delay retirement or from the increase in pensions. contributions from the self-employed, emphasizes Fedea.
In the third case, that of minimum pensions, Fedea warns that “it does not seem to be taken into account” that the review of minimum and non-contributory pensions not only entails a specific increase in their amount but also an important change in their evolution rule. , which stops referring to inflation and is linked to the evolution of average per capita income.
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