SPAIN - Attitudes to retirement in Spain and a lack of economic reform in the country could lead to a mirroring of Greece's economic problems, according to Towers Watson.
Jaime Nieto-Márquez, deputy practice leader for Towers Watson's benefits consulting area in Spain, made the comments this week ahead of yesterday's revelation that the country's debt had been downgraded by rating agency Standard & Poor's, prompting fears of a sovereign debt crisis contagion across Europe.
Nieto-Márquez in particular highlighted the Spanish tendency to take pre-retirement as a problem the current and previous governments had all failed to tackle.
He also warned that demographic shifts, coupled with high unemployment and debt, could cause problems for the county.
"It's not the situation of Greece, but it could be if you don't take measures," he said.
Additionally, Nieto-Márquez said the problem of pre-retirement needed to be addressed, as it was draining the country of unemployment benefits at a time when almost one in five Spaniards was out of work.
When a person retires in Spain before 60, having paid into a pension system for the required number years, they receive unemployment benefits to bridge the gap until they can progress to early retirement.
Nieto-Márquez said that many Spaniards did not even consider private pension arrangements and instead relied on the state pension system that offered a maximum of €35,000 a year.
Private pension assets in Spain represent less than 10% of GDP, contrasting greatly with countries such as the UK and the Netherlands where assets are measured at more than 100% and 150%, respectively.
Nieto-Márquez also cited anecdotal evidence of "middle management" individuals who, instead of investing in pension plans, relied on redundancy payouts as their retirement fund as evidence of lack of sufficient awareness.
The Spanish government is considering how to reform the pension system, with one suggestion to increase the retirement age from 65 to 67 over two years by 2017.
Other ideas include a shift to a career average pension, rather than a system that only examines the last 15 years worth of salary, and a drive to promote flexible working hours to allow and encourage people to stay employed until 65, forgoing early or pre-retirement.
None of these proposals have yet to be adopted, while it has been projected that Spain's 2008 social security surplus of €14bn will disappear by 2022 as the number of pensioners rises.
Asked if a shift towards a collective defined contribution (DC) scheme, similar to the incoming NEST scheme in the UK, was likely, Nieto-Márquez said it was doubtful.
"The private market needs to increased," Nieto-Márquez said, citing the model of a compulsory pension scheme for every company as one possible way forward, especially given that the Spanish public pension system would be facing cuts in the future.