The viability of the system pensions It is a concern shared by administrations and beneficiaries. Visualizing retirement from work with the perspective of receiving a sufficient benefit to live with dignity worries future pensioners, and puts pressure on governments around the world, which try to adapt their systems according to the behavior of constantly evolving variables such as demographics. or increased life expectancy.
According to the latest edition of the Mercer CFA Institute Global Pension Index, prepared by the consulting firm Mercer, the Monash Center for Financial Studies (MCFS) and the CFA Institute, and which compares the pension systems of 48 countries (on this occasion it includes Vietnam) under three parameters (sufficiency, 40%; sustainability, 35%; and integrity, 25%), the Spanish is located in the intermediate range of the table: 26th place; with a total score (adding the three sections) in 2023 of 63.3 (out of 100), higher than that obtained the previous year (61.6). Although the study considers that pensions in Spain are reasonably well regulated, it warns of the risk that the progressive aging of the population and the low presence of private and occupational plans will pose to their stability in the future.
The Mercer report separately evaluates the results of each country in each of the three previous concepts, and in two of them Spain obtains a slightly higher score. In the sufficiency subindex—which assesses the base level (or safety net) of income provided by each system—, the score is 82.9 points, although the study suggests that it could be improved by increasing “the minimum level of support provided to older people with fewer resources,” and “expanding the coverage of occupational pension plans through automatic affiliation.”
In terms of integrity – understood as the ability of private sector pension providers to offer retirement benefits over many years – Spain’s score has dropped from 79.2 to 77.6, and the text recognizes that “Transparency and good governance are aspects in which the system performs well compared to other countries.” However, what lowers Spain’s overall score, despite the fact that it has experienced an improvement in the last year, is the result it obtains in the sustainability section, where it has gone on to add 30.7 points (previously 28.5).
To correct this low qualification, the report suggests that the country must continue to increase the participation rate of older workers, “as life expectancy increases.” To achieve this, it proposes that the legal retirement age – which in 2024 is 65 years for those who have contributed for 38 years or more, and 66 years and 6 months for those who have contributed for less time – adapts “to the growing hope life”. Currently, this is 84 years, one of the highest in the European Union.
Long term impact
Along with the demographic perspective, the report emphasizes, on several occasions, the need to increase the weight and expansion of both private and public and occupational pension plans. In 2022, a change in Spanish legislation was introduced by royal decree to promote these tools, and, in particular, for public promotion employment pension funds (FPEPP) designed by the then Minister of Social Security, José Luis Escrivá, and with which they sought the incorporation of new employees into the company’s pension plan almost immediately.
However, this adaptation has not yet been deployed in the desired way, and it has still not gained sufficient size for studies such as Mercer’s to consider it a sufficient pillar of support for future pensioners. In Spain, pension funds were introduced in 1984 and did not take off in the first years. In fact, the volume of assets, in terms of GDP, has been one of those that has advanced the least since then.
Despite recognizing the good purpose of this reform, the report points out that, although it represents an important step towards improving the system, “its long-term impact has yet to be determined”; Therefore, it will be “essential to evaluate the effectiveness of these measures over time and adjust them as necessary.”
