Young people will have to delay their retirement age if they want a good pension.

MadridThe length of a person's working life has a direct impact on the retirement benefits they receive once they stop working and, consequently, on whether they are forced to postpone or delay leaving the workforce for even longer. In fact, to be eligible for retirement, it is necessary to contribute a minimum number of years, in addition to being of legal pensionable age. However, there are a number of factors that make this path difficult, especially among today's young people. One of these is entering the labor market later, as confirmed by a study by the Valencian Institute of Economic Research (Ivie) and the BBVA Foundation.

"The later entry of young people into the labor market, with an employment rate between the ages of 16 and 29 15 percentage points lower than in 2007, will make it more difficult to complete sufficiently long careers to obtain a pension at the ordinary retirement age that allows them to maintain their previous standard of living." Specifically, according to the study's projections (which point to 2065, that is, forty years from now), "young people today who have only been able to contribute for thirty years by 2065 will be forced to retire at 71." On the other hand, those with "thirty-five years of contributions could retire at 68, and if they have contributed forty years, at 65."

These projections look at how long and to what age these young people should work so that the replacement rate (the difference between the first annual pension a person will receive and the last annual salary they received in their last year of working life) is as high as possible. "The shorter the working life, the lower [the replacement rate] will be, that is, the smaller the pension will be compared to the last salary. This, when combined with lower base salaries, could lead to sufficiency problems and, therefore, a weakened level of well-being during their working life, but also after retirement," it indicates.

Under current legislation, projecting to 2065, a gross replacement rate of 90% (equivalent to a net rate of 100%, meaning maintaining the previous standard of living) would be achieved with 40 or more years of contributions and a retirement age of 65. To achieve the same replacement rate with a 35-year working career, retirement would have to be delayed until age 68, and until age 71 with only 30 years of contributions.

The report focuses primarily on the employment rate for young people aged 16 to 29. In 2024, it stood at 43.2%, 15 percentage points lower than the rate recorded in 2007 among that same age group. However, it should be noted that just before the financial crisis, many young people were entering the workforce earlier because the economy was experiencing a boom. But after the Great Recession, the trend changed, and over the years, this group has opted to extend their studies, as organizations such as the Bank of Spain have confirmed.

Youth precariousness

The study, in addition to questioning the latest reforms to the pension system, suggests that one element that could alleviate the future situation of these young people is having sufficient accumulated savings, either through a private pension or through receiving an inheritance. However, the ability to save is closely linked to the income received, as well as the cost of living. In fact, the same report notes that, "in general, young people are more exposed to changes in the economic cycle and the average quality of their jobs is worse": "25.3% of young people work part-time, 12 percentage points above the population average, and the temporary employment rate among employed youth (31.5%) is also higher."

The report also identifies salaries as the third dimension of greater job insecurity among young people: "The salaries of young people between 16 and 29 years old are 34% lower than the average, and their income growth throughout their working lives is slower."

The study's final conclusions aren't exactly optimistic. "The outlook for young people today regarding future pensions is uncertain. Future reforms could affect the replacement rate depending on system spending. Even without regulatory changes, young people today will have to make a greater contribution effort and bear a higher reduction in the replacement rate."