SPAIN - Successfully introducing a private pension system in Spain will take a generation, one of the leading consultants in Towers Waton's Spanish office has said.
Speaking to IPE, Jaime Nieto-Márquez, deputy practice leader for benefits consulting in Towers Watson Spain, said recent negotiations between the government and social partners had highlighted the need for a private pension system in the country.
He said proposed changes to taxation could positively impact pension saving, but that the impact of these changes would not immediately have the desired effect and result in demand for private retirement savings.
"My feeling is, it would not have a very big impact in the short term because, at the end of the day, the problem with pensions is the money," he said. "If there is no money on the table, then it is difficult [to save].
"But if you include the tax changes, at the end of the day - in the medium term - this could imply an increase in the private side."
He said the shift could take as many as 50 years, and that the only way to shorten the timeframe would be to introduce private pension systems.
Additional problems arise due to demographic changes in Spain that could impact the system before it is fully developed, he said.
"To tell you the truth," he added, "I would not expect, within these 50 years, the private [sector] to be higher than the public [funds]."
Nieto-Márquez noted that while the reforms had yet to be formally approved by the government, agreements had been reached between the state and the country's social partners, including an increase in retirement age to 67.
Additional changes include that pension payments will eventually be calculated based on the last 25 years of employment, rather than the last 15.
Further, pensioners will have to accumulate 38½ years of social security payments to draw a full pension, an increase of 3½ years.
Nieto-Márquez acknowledged that increasing the number of years examined to calculate pension earnings to 25 between 2013 and 2022 would result in a rapid rise, but he said Spaniards understood action was needed.
Asked if the country's €58bn Social Security Reserve Fund would change its asset allocation strategy, which sees it currently heavily invested in Spanish government debt, Nieto-Márquez said it was difficult to predict, as the government should be confident in its own debt.
"During the years in which the markets were good, the possibility was discussed for El Fondo de Reserva de la Seguridad Social to change from public bonds to private ones, and also to equities," he said.
He said these changes were forgotten about when the financial crisis hit, but that it may be reviewed once the global economy has fully recovered.
The Organisation for Economic Co-operation and Development's secretary-general Angel Gurría last month said the reform proposals would improve the country's long-term sustainability and public spending.
He said: "It makes substantial progress in strengthening the link between contributions and benefit entitlements, which will reinforce work incentives and reduce the black economy.
"The fact it was agreed with the trade unions and employers bodes well for its full acceptance and implementation."