Pensions: demagoguery or data

The calling of elections brings the public pension system back to the forefront, perhaps without fully appreciating how socially sensitive it is. It is part of our welfare state and a differentiating factor to be defended in relation to other economic models where individual capitalization systems predominate, with the risk of leaving population sectors—the most disadvantaged—unprotected.

The current system was established in 1919 with the Worker Retirement Law and has progressively been modified and improved, being an advanced and robust social protection system regulated by article 41 of the Constitution. We start from what is called the single box system for the entire State (Catalonia does not have the legal structural mechanisms to manage it).

Some approximate figures show us the reality of the system and whether it can be guaranteed in the future. Currently, in Spain there are 9.5 million pensioners, of which 1.6 million correspond to Catalonia, and all of this generates an expenditure of almost €206 billion per year (€37 billion in Catalonia).

The increase in the average pension has evolved significantly (50%), and thus we have gone from €1,050 per month to the current €1,608 (from €1,040 to €1,550 in Spain), far exceeding the accumulated inflation amount, which was 28.5% in the same period, meaning that pensions show a net increase of 21% relative to inflation. This phenomenon is fundamentally caused by Law 21/2021 of December 28, which guaranteed the increase of pensions in line with the CPI, as well as the progressive increase of contribution bases.

Currently, this expenditure is around 13% of GDP and the Airef forecast is that by the year 2050 it will reach 16%. It is worth mentioning as an essential feature the high figure of the replacement rate (amount that the worker receives upon retirement in relation to their last salary), which in Spain reaches 80%, and which presents a notable difference with the EU (of approximately 55%). This is, without a doubt, one of the objectives that will have to be worked on for the sustainability of the system.

This system is supported by the existence of 22.5 million active workers, of whom almost 4 million (18%) correspond to Catalonia, and who generate contributions in fees of about €170,000 million. Catalonia contributes –the ministry does not publish the data; therefore, it is a calculation– around 19% (about €22,000 million per year). We have, therefore, an approximate deficit of €36,000 million, an amount which the State takes charge of from the general tax system (VAT, Personal Income Tax...).

This income system, in Catalonia, would be negative if we refer only to the territorial accounting deficit (what each territory contributes and spends on pensions), but it would be favorable given the current transfers from the State coming from taxes if we apply the situation of fiscal surplus of Catalonia towards the State, in which Catalonia contributes more than it spends.

Another element to take into account for the sustainability of the system is the Social Security reserve fund (pension piggy bank), legally created in 1997, which has evolved from being practically emptied (2012-2018) to the current €15 billion, and continues to grow.

Although the ratio of workers per pensioner is correct (2.3 in Spain and 2.4 in Catalonia), the income for the system is not due to low wages and contributions. And yet, in Spain, the system will be affected by the upcoming retirement of the baby boom generation: the exit of workers from the market due to age will be massive until approximately the year 2050, the date by which it is calculated that there will be about 15 million pensioners, so it will be very critical to maintain the system only with the contributions of active workers.

The situation, however, is foreseen and adaptations and improvements are being applied to ensure the viability of the system. We are not in a system failure, but rather the evolution of the population's age requires more income and management efforts, as already foreseen by the Toledo Pact.

It is about progressively increasing revenue through the intergenerational equity mechanism already in force, removing the cap on maximum contributions, as well as delaying the retirement age, adjusting it to the new life expectancy –now around 85 years– with the necessary exceptions, and regulating voluntary work extension beyond the retirement age. Finally, it will surely be necessary for State transfers to be higher for a season.

Another factor to consider, in a rational, calm and technical manner, far from partisan interests, would be the possibility of activating private sectoral plans or funds based on mandatory contributions by workers and companies, so that pressure would be taken off the high replacement rate. But this possibility can only be proposed for future generations.

The future is foreseen, then, and under no circumstances should the retirement of the baby boom generation lead to the abandonment of a mechanism of social responsibility and success such as intergenerational solidarity, and even less to the disappearance of a fundamental social protection system. If we were to do so, we would be abandoning a significant part of the population at an age when vital alternatives are minimal. It is a matter of reaffirming the system with the necessary modifications that guarantee its continuity. Let us remove pensions from partisan political debate, as the Toledo Pact already did, and focus on alternatives for improving the system that help to preserve it.