The future of the welfare state: more workers aged 55 to 64 are needed
A study by EsadeEcPol states that 41% of the Spanish population contributes more than they receive in benefits
Barcelona41% of the Spanish population contributes more through taxes and fees than it receives in benefits. The proportion rises to 68% between the ages of 25 and 64, the active stage of citizens, and falls below 10% at the extremes of the life cycle, childhood and old age, which maintains a growing trend. The issue is that formulas must be devised to distribute the costs of population aging "in a more predictable and equitable way between generations" to "prevent them from being transferred in a less visible way to future generations through higher levels of debt," according to a study by the economic policy center EsadeEcPol. One of the solutions they propose consists of increasing the proportion of the working population aged 55 to 64, which is below the European average, and which contributes the most in social security contributions and taxes.
The authors of the report, Miguel Almunia, professor of economics at Cunef and senior fellow at EsadeEcPol, and Pablo García-Guzmán, economist at the European Bank for Reconstruction and Development (EBRD), propose as one of the possible measures "raising labor participation at advanced ages." The employment rate between 55 and 64 years old, the stage in which one contributes most relative to what is received, was 61.1% in Spain in 2024, below the EU average (65.2%) and far from economies like Sweden (78.1%) or Germany (75%). The peak of positive balance in favor of the taxpayer occurs in Spain at age 50, with an average of 11,000 euros more per year relative to what is received, and falls into a deficit of 16,000 euros at age 70, when the end of activity usually coincides with the receipt of pensions.
According to the study, if Spain were to converge with the European average in employment levels for the 55 to 64 age group, the total net fiscal balance (difference between what is collected and the benefits provided) would be around 14 billion euros, equivalent to 0.9% of the gross domestic product (GDP) in 2024.
Life expectancy and retirement age
Another proposed path would be to introduce mechanisms that link the effective retirement age to longevity, "with safeguards for health, employment, and career path, as other European countries have done". Life expectancy at 65 has increased by almost seven years in Spain between 1975 and 2024 (from 15.2 to 21.9 years), "while the retirement age has only increased from 65 to 66 years and six months during the same period, they state. "Not all the years of life gained are of full professional capacity, but the disproportion is significant enough to invite reflection," they add.
Along these lines, "a growing number" of European countries have introduced automatic mechanisms that link retirement age to the evolution of life expectancy. In Denmark, an indexing mechanism was introduced in 2006 which, from 2030, will increase the retirement age by one year for each year that life expectancy at 60 increases, with 15 years' notice. The current retirement age is 67, and it will rise to 68 in 2030, 69 in 2035, and 70 in 2040. Estonia, Finland, Greece, Italy, the Netherlands, Portugal, and Sweden have also adopted similar mechanisms, the authors recall.
In Spain, the reforms of 2011 and 2013 incorporated for the first time the figure of the sustainability factor. The 2013 reform also included a pension revaluation index that replaced the consumer price index (CPI). In any case, the application of the sustainability factor was postponed, and the 2021 reform restored revaluation with the CPI and included the intergenerational equity mechanism (MEI).
The study acknowledges the contribution of immigration, which improves the fiscal balance. But it warns that it is an active population that, at the same time, adds dependent child population, which absorbs part of the surplus. At the same time, they tend to be, in general, "workers with a lower educational level and who, therefore, contribute lower per capita fiscal balances". And furthermore, newcomers who contribute today at active age will retire and generate entitlement to benefits. And an increase in the fertility rate of the population in general would raise spending linked to the child population and would only have a positive impact "in the decades to come".