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IPE special report May 2018

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Spain needs pension reserve fund – Moody’s

SPAIN – Rating agency Moody’s says the building up of a public pensions reserve fund is one of Spain’s top priorities – and that a funded system is an “option” alongside the current pay-as-you-go system.

“The reduction of the central government’s debt and a continuing build-up of a public pension reserve fund (to better tackle the upcoming pension funding risks) are top priorities for the use of budget surpluses,” Moody’s said in its annual report on the country.

Angel Martinez-Aldama, director general of Spanish pension fund association Inverco, said the fund, set up four years ago and now worth 12 billion euros, could only offset one and a half months of pension benefits.

Mooody's said that while Spain seems relatively well-placed to cope with the costs of an ageing population, important challenges remain.

“Due to the ageing of the Spanish society, to a decline in the working age population and a large increase in the old-age dependency ration, growing future pension liabilities must be taken into account.”

“The complementation of the public PAYG pension system with a further developed funded pension system seems to be an option,” the report adds.

"The ageing of the Spanish society will require further reforms of pension and healthcare systems to cope with increasing budgetary costs of the demographic change," said the report’s author Alexander Kockerbeck.

The agency gave Spain an Aaa rating with stable outlook backed by a “continuing improvement in the government's fiscal position” and “institutional changes in budgetary rules and processes”.

Moody’s added that the new Socialist-led government seems committed to continue the established path of economic reform and consolidation.

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