Sections

Spain not out of 'danger zone', must tackle deeper pensions reform – IMF

Related images

  • Spain not out of 'danger zone', must tackle deeper pensions reform – IMF

SPAIN - Spain will have to implement deeper pension reforms as part of its plan to cut its deficit, as the country is "not out of the danger zone", the International Monetary Fund (IMF) has warned.

In its consultation notice with Spain, the IMF said the Spanish economy had been gradually recovering from Q1 2010, as the country has made efforts to reduce the cost of its pension system and to regulate its banking sector by forcing lenders to meet minimum capital requirements.

But the institution also stressed that several issues remain.

According to the IMF, costs associated with ageing are projected to rise by 9% of GDP by 2060 - as previously calculated before the introduction of the pension reform.

The IMF said: "The recent draft pension reform is a landmark improvement and significantly reduces longer-term pension costs, but could be further enhanced during the parliamentary approval process."

The organisation also insisted that pension reform and a balanced budget would ensure longer-term sustainability, and it put forward several options for achieving this.

First, the transition period could be shortened and incentives for early retirement further reduced, it said.

Then, the link of pension parameters to life expectancy (the sustainability factor) could be made automatic, and the reference period extended to life-time earnings.

But the IMF also noted that securing long-term sustainability also required additional adjustments to attain Spain's medium-term objective (MTO) of a balanced budget over the cycle, and further reforms to address the pressures from ageing, particularly healthcare.

"To help anchor expectations, the government should thus commit to achieving early its MTO by no later than 2016," the IMF added.

Last month, Spain approved the government's proposed pension reform, which aims to raise the statutory retirement age from 65 to 67 gradually between 2013 and 2027.

The new pension reform also aims to increase the number of years to calculate the earnings base from 15 years to 25 and the number of contribution years to qualify for the full pension from 35 years to 38.5.

The IMF estimates the reform recently introduced will cut spending by about 2% of GDP by 2050, while further pension measures could help to reduce spending by 3.5% of GDP.
 

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • IN-2454

    Closing date: 2018-08-01.

Begin Your Search Here