The former minister’s pension reform, Jose Luis Escriv, is predicted to cause Spain to allocate a higher portion of its GDP to public pension payments in the coming decades. According to the Aging Report by the European Commission, this percentage is expected to reach 16.7% in the year 2070. Prior to this reform, it was estimated that Spain would rank lower in pension spending among European countries, with a projected ratio of 10.3% for the same year.
The increase in public spending on pensions is largely attributed to measures such as annual pension revaluation based on inflation, which has led to significant increases in pension payouts. While the intent behind these measures was to ensure that pensioners maintain their purchasing power in the future, there is a lack of consensus on the effectiveness of the pension revaluation mechanism.
The reform introduced by Escriv also includes changes to contribution rates for both self-employed and salaried workers, as well as adjustments to the computation period for pension calculations. These measures are expected to increase Social Security income as a percentage of GDP, from 12.9% in 2022 to 14% in 2070, although they may not fully offset the rise in pension spending.
Despite the projected increase in income, the system is still expected to run a deficit, which is predicted to worsen over time. To address any imbalances, the reform includes a clause that allows for additional adjustments to be made in the future if necessary. The exact nature and extent of these adjustments will depend on ongoing evaluations by the Independent Authority for Fiscal Responsibility.
Overall, the reform is expected to lead to a net increase in public spending on pensions, with various factors contributing to this upward trajectory. While the measures introduced aim to ensure the sustainability of the pension system, further adjustments may be required in the future to maintain financial equilibrium.