As we have seen in recent times, the Catalan question absorbs most of the political agenda. To some extent, it is understandable, insofar as it is a conflict that started at the beginning of this decade and that, not only has not been resolved, but is increasingly bitter. And, as much as the current government wants to have gestures with the Catalan independentists (dialogue or negotiation tables, some prisoners being released from prison to work, etc.), and that the parties that represent them (ERC and Junts per Catalunya) are decisive for the approval of new General State Budgets, the Catalan issue is not the most serious thing that Spanish politics has on the horizon, but pensions and their sustainability over time. Let us explain why.
Our country established decades ago what is known as the “pay-as-you-go system”: active workers, with their social security contributions, maintain those who have become unemployed or inactive, to which other types of pensions are added, such as those of widowhood or orphanhood. The system has worked perfectly for decades, achieving for elderly generations a level of well-being that would have been unthinkable in a different time. However, we did not want to see that the foundations of this model, laid more than thirty years ago, began to be undermined, and in what capacity, by various factors.
It must be remembered that the fundamental factor for the public pension system’s viability lies in the so-called replacement rate: there must be 2.1 active workers for each person in a passive situation. And even better if, in addition, they have a good remuneration and an indefinite contract, so that their contribution to the common pension fund is as large as possible. This means that women of childbearing age have to average a fertility rate of 2.1 (or more), but this figure stopped reaching the end of the eighties, after a drop that had started in the mid-seventies, when the fertility rate stood at 3.2 (more than 600,000 children were born annually in our country, whereas, now, we barely exceed 400,000, and with much more population).
In this change, various factors played an important role, such as the massive incorporation of women into the job market (which led to delaying motherhood until her job was established), the drop in marriage, the increase of the cost of living in certain areas (today, many young people admit that they do not have children because they do not have sufficient means to support them), etc. Despite this, different governments did nothing to facilitate the reconciliation of work and personal life: the only relevant initiative in this regard was the so-called “baby check”, launched by the Executive chaired by José Luis Rodríguez Zapatero (2004-11), but this measure, consisting of a single aid of 2,500 euros per child born in our country, ended in 2010, when, due to the 2008 economic crisis, Zapatero had no choice but to give up many social policies.
In anticipation that, when the baby-boom generation (those born between 1960 and 1979) reach retirement age, more and more public funds would be needed, and given that since 1997 there was a surplus in public accounts, there was created the so-called “pension piggy bank”, which had funds of almost 70,000 million euros at its peak. If we add to this that, in 2008, the public debt was 35 percent of our GDP, pensioners could rest at peace: there was still plenty of room for the pension system before entering a difficult phase.
At this moment, the pension piggy bank barely has 5 billion, which is not equivalent to an additional payment
But everything changed, as we say, with the terrifying recession, from which the country has not yet fully recovered. The need to clean up the financial sector with public resources led the State to take over the mergers of savings banks (cajas de ahorros, in Spanish) via national debt (remember, because many forget it, that the banks, unlike the savings banks, did not receive such public aid). To this were added other factors that shot public debt over GDP to 100.4 percent in 2014 (now it is at 95.5 percent). In parallel, the drop in tax collection due to less economic activity triggered the pay-as-you-go system from the surplus to the deficit quickly. This has meant that, today, the “pension piggy bank” barely has 5,000 million, which is not even equivalent to an additional payment —pensioners receive two payments a year, at a cost of about 10,000 million each.
All governments have been hiding the reality of what was happening and, instead of finally emptying the “piggy bank”, they have transferred to the public debt the increasing cost of pensions that, today, with the current number of contributors (close to 19.5 million), cannot be sustained via social security contributions. A direct consequence of this: the system is not only completely broken, but already accumulates a debt of over 50,000 million. And the most worrying thing is that everything is getting worse. And here is why.
In the first place, life expectancy keeps on rising: men already have a life span of 83, while that of women is 88. And there are no signs that, for the moment, this trend will stop. Thus, those over 90 years of age represent more than 1 percent of the Spanish population.
Second, each generation has fewer and fewer potential workers: children born in the 1980s were already fewer than those in the 1970s; those of the 1990s, were fewer than their predecessors; and so on. It must be remembered that, in addition, the fertility rate has only decreased. Although we are not at the most critical moment (which occurred in 1998, when it fell to a paltry 1.0), the current 1.3 is an aggravation of the problem. In the years of the “real estate boom” (1996-2008), this rate rose to 1.6, but it decreased with the crisis. This has motivated that, for several years, every year more people die than those who are born. Our country has grown so old that the average age is already 44, a very troubling figure.
And third, it should be borne in mind that workers who enter retirement are receiving the highest pensions in our history, while the new generations are contributing less and less, and they jump from one temporary job to another (what is known such as “job precariousness”). Thus, already three out of every ten workers earn less than 1,000 euros a month, when the average pension has already reached 1,150-1,200. In other words, the situation is becoming increasingly unsustainable.
But, as we said, politicians continue to look the other way and ensure that the system resists, passing the ‘granade’ so that it is not their Executive the one that receives the blast. Once the analysis has been carried out, and following alternative models may serve as a reference (the so-called “Austrian backpack”, the Fornero Law in Italy, etc.), these are some of the measures that should be put in place to avoid definitive bankruptcy:
- Delay the retirement age: Increasing the age to enter retirement, year by year, one month, as the Government of Rodríguez Zapatero ordered, is practically useless when it comes to alleviating the situation. The move should be much more drastic to ensure that at least those who are already collecting the pension do not see their income reduced. Here, the model to follow would be the aforementioned Fornero Law, approved in Italy by the Monti Government (November 2011-April 2013), and which automatically raised the retirement age to 67 years (although it must be remembered that it was repealed in 2019). It should also be taken into account that, for reasons of seniority, older workers are normally those who contribute the most, as they have the highest salaries (five-year, six-year terms, direct positions, etc.). Not to mention that it will be necessary to weigh the possibility of extending the proposal even further, as is the case in the public sector, whose employees can remain active until the age of 70.
- Create an individual pension model: It might be through investment funds, via retirement plans, the new generations of Spaniards must be aware that the public pension, at the rate things are going, will not go beyond a mere complementary income to all of their disposable income once they have retired. For this reason, a government would be very necessary to make the population aware of the real situation that arises, but the most desirable mechanism is a true State accord (such as the Toledo Pact, which has not been met for a long time), because it is evident that there is no Executive who will not want to pay pensions.
- Encourage companies to keep their workers active once the retirement age has been lowered: In light of the current trend (of layoffs or employment regulation files to avoid having to continue paying the largest salaries), the State should give a hand to prevent companies from wanting to get rid of these workers. In this sense, taking into account that these will normally be of advanced age, it would be highly appreciated if part-time workdays were to be normalised more and more.
- Stop charging the deficit in the “pay-as-you-go system” on the national debt: Because this implies, either through the implementation of new taxes (or the increase in existing ones), or by increasing the already huge debt-to-GDP ratio, which the new generations, already increasingly poorly paid, have to bear the burden of supporting current pensioners.
- Freeze the rise or revaluation of pensions: This is, by far, the most difficult measure to take, because pensioners, who will reach 10 million people this year, constitute a very important vote pool for any government that wants a mandate revalidation. However, the data is, once again, stubborn: current pensioners have contributed, on average, for only 30 percent of the amount they have received since they accessed their respective pension. Again, it will take a significant effort to communicate, since not few people think that, when they worked, they were already paying their future pension, when the one they were paying was that of people who had become passive. This leads to the conclusion that workers who are now active cannot even remotely support the growing mass of pensioners. In this sense, we are very afraid that the current government prefers to continue hiding reality instead of facing it decisively and the electoral cost that it may entail, but that will never be as high as that of a social outbreak that is coming sooner or later, and that would dynamite all consensuses.