SPAIN - The Spanish prime minister, José Luis Zapatero, has announced an increase in state pension payments in a sign of his confidence in the public pay-as-you-go system.

Pensioners on the lowest level of benefits will see their incomes rise by at least six percent, double the rate of inflation. While those supporting a spouse will see an increase of eight percent. Other pensioners will see their payments rise in line with inflation at around three percent.

Zapatero said that he expected the increases would effect around three million pensioners and cost the social security system around 400 million euros. It is the biggest increase in pension payments since 1987, he added.

Zapatero was speaking at a mining festival in his home region of Leon. He said he intended to meet with union leaders to get their approval for the increases in order to maintain the spirit of the Pact of Toledo, the cross-party agreement which governs the development of the Spanish pension system.

The generosity of the new socialist government has not prevented the private sector from continuing its development this year.

A new report by Grupo Santander says that Spaniards are increasingly turning away from bank deposits to more sophisticated products. Bank deposits now account for just over a third of financial assets down from over half 10 years ago.

This year insurance policies and direct investment in equities have benefited most. Both grew nine percent. Investment funds grew by five percent and pension funds just one percent.

The number of households that were able to save grew 0.1% to 36%, the first increase in that figure since 2001.

The total financial assets held by Spanish households has doubled over the last ten years to 1.3 trillion euros. Financial assets account for a quarter of total household wealth in Spain. The rest is held in property.