Despite knowing that the pension system is heading towards bankruptcy, the Government of Pedro Sanchez continues to take giant steps and make promises to its pensioners. Spain owes itself to retirees in what is currently called ‘implicit debt’promises that are not officially recognized and that do not involve the issuance of bonds, but that must be fulfilled.
If taken as a reference the Eurostat studyin the year 2021, The implicit debt figure exceeded 500% of GDP. This is five times more than the official debt that is linked to the risk premium.
The imbalance is latent. In the Eurostat graph it can be seen that the implicit debt gains weight (golden bands), they are the Government’s commitment to respond to payments using only taxes. For their part, the almost non-existent blue stripes represent private savings, the capitalization part.
In countries with greater balance, such as Iceland, the Netherlands, Sweden or Denmark, pensions do not depend on demographic change, the number of immigrants or the growth of the country.
And since the retirement of the baby boom generation began three years ago, the state public coffers are experiencing a noticeable and inevitable imbalance of lows and highs. In the end, it means for the State to finance spending on contributory pensions; 16% or 17% of GDP, approximately.
In Spain, public debt does not stop growing. In 2023 they registered 326,949 pensioner registrations compared to only 265,060 casualties. A difference of 23.4%, which is considered the highest in the recorded historical series.
Spain’s commitment to pensioners
The gap doubles the 9% difference registered in 2022 and exceeds the average of the years before the pandemic, which was 15%. The Government continues to put the country in debtat the expense of new generations who, in turn, do not have access to a stable job or decent housing.
The Spanish State has expressed its commitment to the holder of a bond to pay him a rate of interest and return the principal when a certain time passes; the duration of a bond. If the Social Security rules changed tomorrow, Pensions would begin to be collected at age 75 and would be equivalent to the SMI.
In each pension reform, the conditions for accessing or collecting the benefit are modified, with worse conditions for the pensioner, but they remain intact. The pensioner feels helpless in this regard and has no rights. Contractually, the bonus is mandatory to pay, but from a political point of view pensions gain weight.
Official data show that only in June 2024 10.16 million pensions were registeredwith a variation of 1.22% compared to the same month in 2023. To be more exact, the Autonomous Communities where the balance has tightened the most and the monthly variation has grown the most have been: Balearic Islands (0.30%), Canary Islands (0.29%), Murcia (0.24%), La Rioja (0.22%), Valencian Community (0.21%) and Navarra (0.20%).
In Spain, the Internal Rate of Return (IRR) reflects the percentage that a retiree takes extra with the collection of his pension, taking as a reference the amount contributed. In certain sectors, the State tends to be more generous. This is the case of workers who have had short contribution careers (less than 25 years), whose IRR is 6.04%, compared to 3.26% of those who contributed for 45 or more years.
Furthermore, the system is more generous with those who retire at the ordinary age, since they receive a return on your pensions of 4.03%compared to those who retire early (3.52%) or those who retire late (2.68%).
The implicit debt with pensioners: in detail
The situation in Spain is complex. Inflation is a relief and at the same time an extra burden. The Government intends to protect the purchasing power of pensioners and, with each increase in the CPI, increase retirement benefits equivalently. The effect would be neutral on paper, but the reality is very different, and always tends to benefit the political-social sector, that is, those who are paid. A strategy to keep the majority of the Spanish population happy today; the retirees.
The weight of implicit debt will end up influencing the economy in the next 30 years. The public debt/GDP ratio exceeds 100%with the corresponding payment of interest in the budget. More and more taxes are paid and there are fewer investments because more resources are dedicated, not only to paying previously acquired commitments, but also multiply them by five, up to 500% of GDP.
The feared 500% of GDP could be avoided with a cut in the current pension system and future forecasts. However, far from being suppressed and causing a political-social crisis, everything indicates that the figure could even rise above 600% in Spain.
Source: www.elblogsalmon.com
