The State relies on future pensions on the delay of retirement, more women working and the evolution of the economy

MadridThe expenditure of the entire pension system will increase exponentially in the coming years due to the progressive exit from the labor market of the so-called baby boom generation, the most numerous. It will do so, in fact, from the current 202.607 billion euros to 616.563 billion euros in 2050, when the expenditure peak is expected to be reached. If observed in relation to gross domestic product (GDP, the indicator that measures the economic activity of a territory), expenditure will go from 12.7% of GDP in 2024 to 15.3% of GDP around the years 2049 and 2050.

Taking this trend into account, the question of whether the system is sustainable, especially in the long term, has been hovering for some time. In the eyes of the Ministry of Social Security, the answer is affirmative, and the reasons are, in the opinion of this department, mainly three: the delay in the retirement age, that is, the tendency for people to extend their working lives; the fact that more women are working; and, finally, the evolution of the Spanish economy.

All in all, both the expenditure projections and the arguments about why it is sustainable are included in the report that Social Security published this Thursday after launching

a new tool that allows almost real-time analysis of the trend

in the system, both for expenditure and income. The document has been published just one day before the Fiscal Authority (Airef) presents a new assessment of the system's sustainability, as required by the European Commission. In fact, last year this body already evaluated the future of pensions and in its conclusions there were discrepancies with the Spanish executive: Airef predicts that expenditure will be much higher and, therefore, more income will be needed. But it also questions whether it is equitable (fearing that future generations will have to pay too high a bill to face, precisely, the expenditure).

Observing the future of the pension system is important because if the State deviates from the forecasts it has made in terms of income and expenditure, it would be pushed by the European Commission to adopt new measures. In fact, despite the report from the Ministry of Social Security, the European Commission will continue to calculate the sustainability of pensions in its own way.

Change from 2050

The ministry believes that after a few years of rising expenditure, from 2050 onwards it "will progressively moderate", as stated in the report. "It will stand at around 14.2% of GDP in 2070", the report states. From 2050, with the baby boom generation already retired, retirement pensions will take "a greater leading role" and other benefits will be reduced.

For Social Security, this will be the result of an improvement in workers' contributory careers (future generations will have contributed more stably), but also of "structural changes in demographics and the labour market".

A more active population aging combined with an increase in life expectancy gives rise to greater participation of adults in the labour market. Added to this are the policies approved to encourage delaying retirement (more penalties for early retirement and more incentives if postponed).

At the same time, women would also gain weight in the labour market: "The increased presence of women of working age contributes not only to increasing the total volume of labour supply, but also to improving employment stability and the contributory capacity of the pension system [through contributions]", they indicate from Social Security. Finally, "the improvement in economic activity will lead to a reduction in pensions with minimum supplements".

The weight of retirement

However, retirement pensions will continue to be the basis of the system. In fact, for this reason, spending will not stop growing in absolute terms: Social Security anticipates that future generations will have better pensions not only due to a more stable working life with better salaries, but above all due to the annual revaluation of these benefits in relation to inflation (a policy that was reintroduced by Pedro Sánchez's government). "As a consequence, the total expenditure on retirement pensions would increase sustainably from 0.1 trillion euros in 2024 to 0.8 trillion in 2070," the report indicates. If observed in relation to demographic evolution and GDP (nominal economic growth), the increase in spending "stabilizes," concludes Social Security.