How can we guarantee pensions in the future?

BarcelonaThe YouTubers And some social media profiles have found a new goldmine for generating discussion, tension, and therefore, more views for their content. The claim that young people (millennials and zetas) will have a much darker future than the present enjoyed by their parents and grandparents (boomersThis has reopened the debate surrounding the sustainability of pensions and a scenario of intergenerational conflict that is being particularly capitalized on by the far-right. That the system is under strain is something experts have been saying for years, but beyond the clashes between age groups, the question for the coming decades is different: how to guarantee pensions in the future?

Many of these concerns are based on the impact of the aging population. In 2005, people over 65 represented 16.5% of the Spanish population; twenty years later, their share has grown to 20.7%. At the same time, births have never been so few: from 519,779 in 2008 – just before the great financial crisis – they have fallen to 318,005 in 2024. The current population pyramid bears no resemblance to that of 1975 – see graph. Previously, the largest group was children under four, while today it is the 45-49 age group, who will retire in the next two decades. The system is preparing for increased pressure with the arrival of these nine pensioners, who will also be pensioners for longer periods due to the progressive improvement in life expectancy in Spain.Fifty years ago, men lived on average to 70 years old and women to 76. In 2024, this figure has risen to 81 years for men and 86 for women.

This increase in Spain's aging population is also reflected in another key indicator: the ratio of contributors to retirees. While a few years ago four contributors supported one pensioner, today that figure has fallen to 3.28. Even so, recent record numbers of Social Security affiliations—driven primarily by the latest waves of migration—have helped to mitigate this imbalance. However, demographic trends necessitate a careful analysis of projections for the coming decades to understand the system's sustainability. According to the latest calculations by AIReF (Independent Authority for Fiscal Responsibility), the Spanish population will increase to 51.2 million in 2040, reach 52 million in 2050, and exceed 52.7 million in 2070. At the same time, the dependency ratio of those over 66—that is, the proportion of older people compared to the 6-6 age group—will double from the current 26.6% to 48.2% by 2050. This means that, according to the fiscal authority, there will be approximately two working-age people for every older person. For Ramon Franquesa, professor of applied economics at the University of Barcelona (UB), the population pyramid argument "is a falsification of reality," since the system has withstood other demographic shocks in the past and now has "more contributors than ever." "It's a constructed narrative used to threaten that pensions will eventually run out and to foment a generational war," she emphasizes. "There are three factors at play: demographic—due to the aging population—, labor—the state of the economy—, and political, which carries the most weight. Governments must decide whether or not they want pensions, and there are also economic interests behind this debate," adds Elena Idoate, an economist and member of a collective investment fund. Critics of the current model warn of the significant increase in pension spending, which has skyrocketed since the beginning of the century. In 2005, the annual payroll for retirement pensions amounted to 45.484 billion euros, while in 2025 it tripled to 138.816 billion. Furthermore, the percentage of Spanish GDP spent on retirement pensions has risen from 4.9% in 2005 to 8.2% in 2024. This increase is largely explained by the growth in the number of retirees, which has risen from 4.6 million to almost 6.5 million, and also by the increase in pensions. Longer working lives and higher salaries have led to an increase from €686 to €1,506 in the last twenty years. In fact, in Spain, the replacement rate – the percentage of a retiree's previous salary that they receive in pension – is among the highest in the European Union and the OECD, at 86.3%, according to the latest report published by the organization. In Spain, salaries are relatively lower than the European average, and pensions have traditionally been generous relative to salaries, which explains the higher percentage.

"It's not so much a question of collapse, because as long as it remains a priority expenditure for the State, pensions will continue to be paid. It's a question of intergenerational fairness. Does it make sense that, if people are living longer and longer, this expenditure continues to be prioritized over other potentially fairer ones like housing or education?" I don't think so. Conde-Ruiz, Professor of Foundations of Economic Analysis at the Complutense University of Madrid. For economist Ángel de la Fuente, Executive Director of the Foundation for Applied Economic Studies (Fedea), the current system is "too generous": "We pay a return on higher contributions than the country generates. Each new contributor is generating more deficit, and having more people working doesn't solve the problem. It's a poor solution."

Pay-as-you-go system

In Spain, public pensions are financed through a pay-as-you-go system. This means that current taxpayers pay the pensions of today's retirees. This money comes from various sources, but the main one is the contributions made by workers and employers to Social Security. When these contributions are insufficient, the State supplements them with transfers from its budget. This year, from 2025 to November, €162.032 billion was collected through Spaniards' contributions, which were offset by transfers totaling €50.890 billion, almost 10% more than in the same month of the previous year. Another source of funding is the returns from the Social Security Reserve Fund—known as "the pension piggy bank"—an instrument created in 2000 during the PP government of José María Aznar with the aim of saving surplus contributions to cover future pension payments. Thus, during the surplus years, the fund gradually filled up, reaching its peak of €66.815 billion in 2011. With the Great Recession, however, this fund began to dwindle; the severe impact of the crisis on the labor market reduced contributions, which were insufficient to cover expenses. Although it has grown slightly again in recent years, its size is now much smaller: in 2024 it closed at €9.376 billion.

For economist Javier Díaz-Giménez, who holds the chair on savings and pensions at IESE Business School, one of the fundamental errors is that Social Security has assumed the payment of higher benefits than initially planned, while its only "true" income is contributions. The academic criticizes the Minister of Pensions, Elma Saiz, for asserting that pensions are not in deficit—Social Security funds registered a surplus of €8.505 billion in November 2025—and for downplaying the dependence on state transfers to cover its payment obligations. Idoate also calls for greater transparency, but from a different perspective: "For a long time, the pension fund has financed other policies." A debt has been acknowledged in a report by the Court of Auditors. The auditor estimated that between 1989 and 2013, Social Security assumed €103.69 billion in "improper" expenses that the public institution should not have paid.

Beyond the debate about the growing pension payroll, it's worth remembering that significant inequalities persist among recipients as well. 47.1% of pensioners—including those receiving retirement, permanent disability, widow's, or orphan's pensions—receive less than the minimum wage, while 50.1% receive an amount between the minimum wage and the maximum pension, set at €3,359.60 per month. Although the average income for retirees is €19,436 per year, above the national average of €16,387, 15.4% are at risk of poverty or social exclusion, 18.9% receive the minimum pension, and one in three retirees reports having difficulty making ends meet. This is compounded by the gender gap in retirement pensions, since the average benefit for men is €1,785.01, while for women it is €1,255.57, a difference of almost €530 per month.

Street protests have been one of the pensioners' greatest assets, a group that has achieved significant social victories since the 15M movement erupted. After the socialist government of José Luis Rodríguez Zapatero reformed the system during the height of the crisis, gradually raising the legal retirement age to 67, and after Mariano Rajoy's PP government imposed a minimum pension increase of 0.25%, pensioners mobilized across the country to demand that pensions once again be indexed to the Consumer Price Index (CPI) by law. This latest reform, promoted by Pedro Sánchez's party—the second part of which was approved in 2023—focused on strengthening the system's revenue with the creation of the Intergenerational Equity Mechanism (MEI), an additional contribution (0.9% this year) shared between workers and employers to replenish the pension fund. baby boomers. Furthermore, it has also come into effect a new pension calculation system and more incentives have been introduced for active retirement.

Possible solutions

According to De la Fuente, these legislative changes are heading in the wrong direction. The Fedea economist argues that the best and most sustainable systems are "Swedish-type" systems, also known as notional account or capitalization systems. With this formula, contributions accumulate in a virtual account, which determines the final calculation of the public pension, automatically adjusting to life expectancy. In addition, 2.5% of each contributor's income is allocated to the investment fund of their choice. And there is a third component: supplementary pensions based on employment, negotiated between companies and employees. Díaz Giménez and Conde-Ruiz also favor a mixed system. However, both Idoate and Franquesa believe that allowing financial markets to influence public pensions is a risk to be avoided. "In a time of financial crisis, any social right that takes the form of capitalization is very likely to be lost overnight. We have the experience of the last fifty years in Chile and the United States," argues the UB professor, who is pleased that, for now, private pensions still have little weight in Spain. Meanwhile, the economist from the Taifa seminar suggests that the sustainability of pensions depends on a tax reform that reduces the burden on contributions and makes savings income and corporate income pay more, or on wealth redistribution formulas such as universal basic income.