«The priority of public administrations has been to increase spending dedicated to the age group with the highest income level. This is the conclusion reached by the Juan de Mariana Institute in a report on “Inequality in Spain and the world”, in which it explains that households whose members are over 65 years of age achieve a net improvement in their income by taking taking into account those transferred to them by the public sector and the taxes they pay through different means. He points out that, on the contrary, the rest of the households are net contributors.
According to this work, families with at least one person under 30 years of age concentrate the highest poverty rate (41.4%) and, at the same time, they are the segment that dedicates a greater percentage of their income to paying taxes (48% of their income) and also those that receive the least benefits, 33% of their income.
The think tank directed by Manuel Llamas says that the pensions paid by Social Security between 2002 and 2022 absorbed around four out of every ten euros of new public income. It specifies that while the income of all public administrations grew by 287,000, the bill derived from spending on pensions rose by 110,000 million. “There is no other country in the European Union – he assures – that has dedicated such a large effort of its additional budget to the payment of pensions.”
Inequality problems grow
Along these lines, the Institute reveals that the 65-year-old age cohort has an income level 2% higher than the group of minors of that age and that “this represents an anomaly within the European Union, where, on average, the oldest have an equivalent income lower by 11%. Therefore, public intervention is burdening the problem of inequality in Spain and generating a growing intergenerational gap,” state the authors of the work.
The report describes that after the two world wars, housing and pensions began to have a “majority importance” among the assets in the hands of citizens. Regarding pensions, they affirm that increased life expectancythe primacy of private savings as a complement, or even pillar, of pension systems, and increasing access to financial assets and other forms of investment explain the increase in household wealth generated in this way. They cite OECD data, according to which pension funds accumulate in the world 56 billion dollars in savings for old age and that growth has been notable over the last decade, since in 1980 it amounted to less than a billion.
However, they also specify that in the case of Spain, where the pension system is pay-as-you-go “there are notable differences.” They remember that the Government has withdrawn various tax incentives that prioritized contributions to pension plans, which is why the wealth of households in this type of vehicle is noticeably lower than 8.6% of GDP.
Punishment of pension plans
The authors of the work argue that for this reason, and cite data from the Bank of Spain’s Family Financial Survey, “it is not surprising that so only 29.5% of households in Spain have pension plans». They highlight that the median value of the capital accumulated in this type of asset was barely 12,000 euros in 2022 and that, on the other hand, the percentage of households that own their primary home is 72.1%, with a median value of 150,000 euros, and that 33.8% of families have a home other than their main one.
«Therefore – they point out – promoting a more efficient use of this illiquid capital will be key in the future, hence the growing popularity of different financial products that offer complementary income to the pension in exchange for the transfer of the home, which the owner maintains in usufruct until his death.
Zero-sum thinking
The Juan de Mariana Institute denounces that in Spain “zero-sum thinking, which ignores the creation of wealth and only cares about its redistribution,” has been increasing for years. He adds that “it is not surprising that our income indicators have moved further and further away from Europe and the United States, since the popularity of this type of discourse translates into a preference for economic policies obsessed with penalizing, hindering and taxing the creation of wealth».
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