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

MadridPensions are entering the campaign for the November 29 elections. In fact, it is usually like this 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 across the country 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 hope to receive it in the future: 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 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 outlet 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 from 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, various members of the Spanish government have come out in force, starting with Pedro Sánchez himself: "Message for today's pensioners and for tomorrow's. 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. The Spanish executive has 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 known as a pay-as-you-go system. 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: workers' 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 the Pedro Sánchez government to improve benefits for pensioners, while at the same time ensuring that they can continue to be paid in the future. The changes, therefore, have had an impact on expenditure –now pensions are once again revalued with inflation, whereas before they were calculated taking into account a sustainability factor linked to life expectancy that the PP approved in 2013, which resulted in a cut to the fund–. But they also have an impact 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.

This, however, 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 does not work well, contributions fall and the Social Security coffers, 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 for the retirement of the baby-boomers, the largest generation —it is expected 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 speaks of "capitalization"?

It is this questioning of the system's sustainability that Vox clings to in order to suggest that a new model is needed from one day to the next. 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 a replacement for the public system. How? By creating a private pension plan from the moment one starts working, so that each contributor pays for their own pension later on. "Behind it is an idea to liberalize [the public system] [...]. Right now, they are electoralist proposals," adds the UB professor.

Guillén acknowledges that many European Union countries have moved towards this mixed public-private 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 what is contributed. 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 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.