The agency sees a risk in the aging of the population and recommends adding more years of work to the Intergenerational Equity Mechanism to ensure the sustainability of the system
Higher contributions, work longer and, if not, assume lower pensions. These are the three options that the Organization for Economic Cooperation and Development (OECD) sees as the only viable ones to ensure the sustainability of the system in the countries that are part of the organization. And Spain is once again a focus of concern in the face of an aging population that “is now accelerating at a much faster rate.”
You have to take action. According to the agency’s data, and under the current system, in Spain there will be 78.4 people over 65 for every 100 of contributing age, compared to the OECD average of 52.7. Only Japan (80.7) and South Korea (78.8) surpass us.
In addition, the agency recalls in its report ‘Pensions at a glance’ that the income of those over 65 is equivalent to around 96% of the average income of the total population, which is eight percentage points more than the average of the OECD. Furthermore, the ratio has grown by 11 points compared to 2000 (the income of the elderly has grown at a higher ratio than that of the rest).
Faced with this scenario, the recommendation is firm: the effective retirement age must be raised at the same time as the legal age is increased, in this case to 67 years. And, in a more detailed reading of the document, the Intergenerational Equity Mechanism (MEI) approved in the first leg of the reform promoted by José Luis Escrivá is insufficient to cover the pensions of the ‘baby boom’.
Insufficient
Although he acknowledges that the proposed reform “will help mitigate the financial impact of this generation’s retirement, he warns that the new mechanism -which raises contributions by 0.6 points in 10 years- will barely collect 2.3% of GDP for 2032. The problem is that the forecasts suggest that the revaluation linked to inflation, also agreed with recently, will imply an increase in spending that will reach 1.4% of GDP in 2030 and 2.6% annually in 2050. That is, : the MEI will not be enough to offset this increase in spending.
And it is at this point that the ‘think tank’ of the richest countries makes use of the calculator to justify its recommendation to adopt other measures such as working more years or expanding the calculation of pensions. “Most countries take into account the salaries of the entire professional career to calculate the pension and in the European Union only France, Slovenia and Spain use 25 years or less,” he indicates.
This possibility has generated strong controversy in the last year, after Minister Escrivá raised at the beginning of the year the possibility of extending to 35 years the period that the public system would take into account to calculate the amount of the pension, from the age of 24 current -25 years in 2022- and compared to the 15 that counted before the pension reform of 2011.
This modification of the calculation is precisely one of the commitments that the Government maintains with Brussels within the Recovery Plan that gives access to European funds. Of course, at no time has a specific number of years been set pending a difficult pact with the social agents in 2022, especially due to the strong opposition of the unions to this measure.
The OECD recalls, in this sense, that the measures to ensure the public pension at the time of retirement are still too “lax” in Spain, recalling that to obtain a full pension a 65-year-old worker can retire in 2027 if they have contributed 38.5 years, while in other neighboring countries such as Germany 45 years are necessary.
The organization makes an appeal to all countries, giving an example precisely what has happened in Spain in recent years to warn that a long-term pension policy “requires a broad political consensus before its implementation.” At this point, he harshly criticizes the previous reform by Mariano Rajoy who introduced the Pension Revaluation Index (IRP) in 2013, to show that, without that necessary consensus, the measures may be unsustainable, “which weakens confidence.”
Although the OECD advocates automatic adjustment mechanisms, it recognizes that this measure implemented by the PP resulted in a “constant reduction” of benefits in real terms.
Youth and pandemic
In the report, the Paris-based body also reviews the impact of the pandemic on pension systems. Remember that governments have made a notable effort in these almost two years of crisis to keep benefits safe, so the impact of the coronavirus on the pensions of the next generations will not be overwhelming, but it will end up being noticed by the worst conditions they perceive the youngest when looking for a job.
It must be remembered that many of them have developed their working age in the middle of two strong crises. And now, “the career prospects of those generations have worsened,” creating a ripple effect that will be noticeable when they retire. The document not only refers to young people who are waiting to find a job – delaying their incorporation into the labor market – but also to those who are already doing so and may be affected by the decrease in income derived from the impact of the crisis in sectors such as hospitality or commerce.
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