IEB Report

Political Economy

How can we finance our pensions?

IEB Report 3/2016

State pensions represent 12% of Spain’s GDP and almost 30% of public spending, with one in four of all Spaniards receiving a state pension. Given their importance, it is logical that questions regarding the financial sustainability of the pension system are constantly being raised in our country’s political and economic debates. In 2011 and 2013, major reforms of the system were passed aimed at addressing the impact of an ageing population on the system’s sustainability. In 2011, steps were taken to gradually increase the statutory retirement age from 65 to 67, as well as to raise the minimum number of years of contribution for receiving a full pension. In 2013, an automatic balancing mechanism, the pension revaluation index, was introduced, establishing a minimum increase of 0.25% if pension revenues were insufficient to nance pension costs, and an increase of the CPI + 0.25% if they were.