Spain needs career-average pension system – OECD

SPAIN – The OECD has called for Spain to phase in a career-average pension system, adding that the need for pension reform in the country is more serious than people think.

“If the sharp rise in pension spending as from 2015-20 is to be mitigated, a reform that makes the system actuarially neutral cannot be put off any longer, as many changes will have to be phased in,’” the Organisation for Economic Development and Cooperation said in a report on Spain.

“A significant first step would be to calculate pensions on the basis of earnings over a whole career instead of the last 15 years.” The gradual introduction of such a measure, it said, would not hit current retirees.

“Pension reform is more urgent than generally perceived,” the OECD said, adding that the solution to the problem will involve adopting more stringent measures than already adopted.

According to the Center for Strategic and International Studies, Spain – along with Italy and Japan – is one of the world’s fastest-ageing countries. By 2040 there will be as many pensioners as workers in Spain, the CSIS says.

The OECD recognizes that while the pension system is in a strong financial position at the moment – a situation which should persist until 2015 – it sought to stress the “uncertainty of the situation after 2015”.

It added that the government’s strategy separates the long-term financing problem posed by ageing from medium-term fiscal management. This approach “makes a reform of the pension system essential”.

An ageing population is the biggest challenge to Spain’s long-term fiscal sustainability, the OECD believes.

And, echoing the European Commission, it called for more measures to promote longer active lives. And the system should be revised as pensioners currently receive more than they contribute.

The OECD also said that a recent steep rise in immigration, although positive for the economy, does not lessen the need for pension reform to cope with population ageing.

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