Pensions enter the campaign: how the Spanish system works and what Vox says

MadridPensions are entering the campaign for the November 29 elections. In fact, this is usually the case every time there is an electoral call, due to the sensitivity of the debate for a good part of the population –if not all of it– of voting age: there are currently 9.54 million pensioners throughout the State who receive a contributory pension (the majority for retirement). But the calculation of this benefit depends above all on those who do not yet receive it and trust they will receive it in the future: the workers who contribute to Social Security and, in particular, those who still have years of their working career ahead of them.

But let's take it one step at a time. The debate has returned to the scene following some statements by the Vox deputy in Congress, José María Figaredo: "The pension system [in Spain] is a zombie. It has gone bankrupt," stated Figaredo in an interview with the digital newspaper El Debate. For the moment, the current model, with all its recent reforms, has passed the exams of the Independent Authority for Fiscal Responsibility (Airef). Also those of Brussels, although it has questioned the increase in spending, which, in the opinion of the European Commission, is too high. Be that as it may, for the moment it has not been necessary to activate adjustment measures.

After the dart against the model, Figaredo limited himself to saying (he did not go into details) that Vox proposes a "structural reform towards a mixed model that combines distribution with individual capitalization, as other European countries have successfully done".

In response to his words, different members of the Spanish government have come out in force, starting with Pedro Sánchez himself: "Message for the pensioners of today and for those of tomorrow. The only fund that matters to us is the pension fund," he wrote on X, where he shared a video in which he criticizes the opposition for "sowing concern" about the viability of the system. "The public pension system is not at risk," says Sánchez. From the Spanish executive, they have accused the PP and Vox of wanting to cut and privatize the model.

What system does the State have today?

The State currently has a public pension system based on a pay-as-you-go model. This means that a portion of the contributions from workers who are currently active is used to pay for the pensions that must be met at that time.

It is linked to a principle of solidarity: worker contributions are mandatory and benefits are defined and guaranteed (retirement, orphan, and widowhood pensions, among others) for both current and future pensioners. It is regulated by the administration.

In recent years, the system has been the subject of a major reform promoted by Pedro Sánchez's government to improve benefits for pensioners, while simultaneously ensuring they can continue to be paid in the future. The changes, therefore, have had an impact on expenditure – pensions are now revalued again with inflation, whereas before they were calculated taking into account a sustainability factor linked to life expectancy that the PP approved in 2013 and which resulted in a cut to the fund –. But also on the system's income to cover this expenditure. For example, extending retirement with incentives has been promoted, while early retirement is penalized, the Intergenerational Equity Mechanism (MEI) has been created – an increase in contributions – to fill the so-called pension piggy bank, and higher salaries contribute more.

However, this has always been done under the watchful eye of Brussels because the model directly impacts public accounts – which is why sustainability is in the spotlight. It must also be taken into account that the labor market plays a very important role: when it is not working well, contributions fall and the coffers of the Social Security, which have to cover benefits, suffer. Therefore, there is a certain fear that public debt and deficit will skyrocket. Elements such as the aging of the population also come into play.

In fact, in the Spanish case, the concern is focused on future expenditure due to the retirement of the baby-boomers, the largest generation —it is foreseen that the year 2050 will be the one of maximum tension for the system in terms of expenditure.

What does Vox refer to when it talks about "capitalization"?

It is this questioning of the system's sustainability that Vox clings to in order to propose that a new model is needed overnight. A change, however, that experts see as impossible. "Changes regarding pensions must be made very gradually. In fact, that is how it has always been done," points out Montserrat Guillén, professor of financial economics at the UB and a renowned expert in the field.

When Vox points to a mixed model, it refers to combining the pay-as-you-go model with a capitalization model. The latter implies, in essence, opening the door to a privatization of the system when it is proposed as individual, mandatory, and as a replacement for the public system. How? Through the creation of a private pension plan from the moment one starts working so that each contributor pays for their own pension later. "Behind this is an idea of liberalizing [the public system] [...]. Right now, these are electioneering proposals," adds the UB professor.

Guillén acknowledges that many countries in the European Union have moved toward this public-private mixed model – it is also the one most favored by Brussels. Starting with Germany, where it is even mandatory to have a private plan that is funded with a percentage of one's contributions. In other countries, the worker can choose. "With the salaries we have here [in the State] right now, it is very difficult," warns the professor. In any case, Spain has indeed applied changes to correct potential problems: for example, by extending the legal retirement age. "In Germany, it is already at 70 years old," recalls Guillén.