SPAIN – Spain should embrace pension reform more vigorously to meet the ageing challenge, the European Commission says.

“The European Commission concludes that Spain fully meets the requirements of having a budget close to balance or at surplus as set in the Stability and Growth Pact, but should embrace pension reform more vigorously to address the costs of an ageing population,” the Commission said in an assessment of Spain’s stability and convergence programme.

The Commission said the impact on public finances of pension reform already in train was “unclear”.

It noted that the government wants to move towards a better match between contributions and pension benefits while raising the lowest pensions.

“However, the impact of this potential reform on public finances in the long term, remains unclear.”

It said that Spain appears to be in a relatively favourable position over long-term public finances, “despite the projected budgetary cost of an ageing population”.

It said the reforms agreed under the so-called “Pacto de Toledo” have not yet been fully translated into a reform agenda.

And it added that the “reform agenda to align contributions and benefits more closely is not yet defined”.

“In view of the above assessment, it would be appropriate for Spain to prevent the emergence of unsustainable trends in public finances in the long run, in particular through a major reform of the pension system.”

Elsewhere, the Commission commented on Latvia, Lithuania and Slovenia.

It said Latvia is also in a “relatively favourable position to meet the budgetary costs of an ageing population”.

Lithuania’s relatively low debt ratio and pension reform measures already enacted “would contribute to limiting the budgetary impact of ageing”.

Slovenia faced some risk of budgetary imbalances to meet the budgetary costs of an ageing population.