SPAIN – The Spanish government has a 10-year window of opportunity to reform the pension system which it “cannot afford to miss” says PricewaterhouseCoopers.
PWC says that, given unchanged employment rates, demographics and “current policy settings”, Spain will see its pension spending rise to 13.2% of gross domestic product by 2050. This would give Spain the most rapid increase in state pension spending as a share of GDP amongst the European Union.
In May, the Spanish government said there would be no reform of the pensions system before next year's general election.
But if Spain undergoes comprehensive reform, including higher immigration, increased employment and reduced pension benefits, PWC believes that Spain could cut pension spending rises to 3.7% of GDP by 2050.
“On the other hand, this would also mean that average payments per pensioner would decline by around a third relative to GDP per worker.”
So it says Spain would need to introduce measures to boost private pension provision, which is currently low in Spain.
“A pension system with a better mix of pay-as-you-go state provision and funded private provision would also provide better diversification of political, economic and financial risks,” says John Hawksworth, the head of PWC’s macroeconomics unit, writing in PWC’s 14th European Economic Outlook.
The Organisation for Economic Cooperation and Development has urged Spain to move to a career-average pension system to avoid a serious pension crisis in the near future.