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Spain – How far does the pension problem go?


The budgets presented by the Spanish government for the year 2023 are a clear reflection of a concern that is not exclusive to any party in government. Spending on pensions will rise to approximately 190,000 million euros. This means that only this item will increase during the next financial year by close to 20,000 million euros. Although the high inflation suffered by Spain and the corresponding updating of pensions has had a lot to do with this evolution, the underlying trend reveals a structural problem that has to do with the population pyramid, something that has worried humanity since the time of the economist Thomas Robert Malthus, at the dawn of the 19th century.

A demographic origin

Spain is an increasingly aging country and this implies that the pension bill does not stop increasing. While in 1960 the percentage of people over 65 represented 8.2% of the total population in Spain, in 2020 it has reached 22.9% of the census but it is not something exclusive to the country. In the European Union (EU), the share of citizens aged 80 or over was almost 6% in 2020, while in 2001 it barely exceeded 3.4%, which means that it has practically doubled in less than two decades. On the other hand, the proportion of young people (0 to 19 years old) in the EU was 20% in 2020, which represents a decrease of 3 percentage points compared to 23% in 2001.

A look at what has happened in the last decade can be revealing. In the 10 years between 2013 and 2023, income from social contributions has increased by around 46,000 million euros, going from a collection of 105,863 million euros to the 152,075 million euros budgeted for next year.

The problem is that, at the same time, spending on contributory pensions and passive classes has increased by 68,799 million euros. In other words, in just 10 years, and despite record levels of employment, the system’s deficit has increased by 22,767 million euros per year and that, without taking into account two key elements: Non-contributory pensions; and the fact that we are not yet experiencing the retirement of the so-called baby boom generation. People born between 1957 and 1977 are aligned under this Anglicism. According to Social Security data, in Spain there are 7.7 million workers aged between 45 and 59 years.

The great problem of Social Security has not yet arrived and the numbers already reflect both a growing structural deficit and a level of spending that is perfectly comparable to that of countries like France or Italy. Specifically, pension spending will account for almost 14.5% of GDP in 2023. Now, how far can the problem of pensions go? How is this problem being addressed in other countries and what can we learn from it? How can we cover ourselves against any risk that this system may bring us?

This article was originally published on EL PAÍS