Recently, we commented in the office on a great article published in the newspaper Expansión, which detailed the current situation of the Social Security, and summarized the existing economic proposals that seek to achieve sustainability in the Spanish pension system. We are going to list them and draw some conclusions.
The retirement of the “baby-boom” generation
In the news, in blogs, on the street… everyone is talking and worrying about what the pensions of the future will be like. The present ones seem to be guaranteed. However, those of the baby boom generation are not so clear. Why is this so? Quite simply:
- because their salaries have been and are higher than those of their predecessors, so their pensions should also be higher,
- because they are a very large generation. With their retirement, we would go from having a good number of contributors to the Social Security (filling the pension fund) to having to pay all that volume of pensions, and these pensions would last longer, given that life expectancy continues to grow.
Possible solutions to the pension problem
Now the million dollar question, ¿How can this imbalance we are predicting be solved ? Let’s look at the proposals that are being considered:
Financing
To be able to finance certain pensions (orphanhood and widowhood) through taxes, thus preventing the Social Security from meeting their costs. We are talking about €24 billion per year.
Corrective factors
Seek sustainability through the introduction of corrective factors, which introduce life expectancy into the formula. This is already related to the limitation in the revaluation of pensions, preventing it from being equal to the CPI, but rather to a minimum of 0.25% and a maximum of 0.5%.
Continuity in the labor market
Compatibility of pension payments with continuity in the labor market, which is not possible right now. This is already a reality today.
Limitation of early retirements
A practice that outrages many people because of the high cost to be borne by Social Security.
Promotion of private savings plans: improvement in the tax treatment to encourage families to save more, trying to promote having more money available in our retirement.
As we can see, some measures could be considered a mere sharing of the cost among public institutions (as the first one could be), or a simple cut in pensions (this is the second one, which we already talked about in our article of a few months ago “The uninformed lie of pensions and the S.S.”). On the other hand, the other alternatives that are being considered seem to us to be very favorable to try to improve this situation in which we find ourselves.
If you want to assess how much you need to save to have a certain amount when you retire, contact us. Our Savings and Investment Department will help you to achieve it.
