From the long-term perspective that the pension industry is supposed to adopt, it’s not that long since the Pyrenees and not the Strait of Gibraltar were considered to be the southern boundary of Europe. Spain was a strange, wild place tagged incongrously onto France. Tourists from north of the mountain range visited for the beaches and the beer, but on the whole tended to stick to the seashore.
Of course, in most ways Spain is now a fully integrated and highly respected member of the EU. But despite cross-border investment, despite international conferences, despite the combined expertise and persuasive charm of JPMorgan Fleming, Schroders, Fidelity and their competitors from London and New York, when talk turns to pensions, Spain can still seem a strange place.
Although there is plenty of argument about pensions, there is no disagreement about the policy fundamentals. Political parties from the right and left as well as the trade unions concur on one thing. The Spanish system of public provision is stronger than it ever has been and the so-called international experts who have been repeatedly predicting its demise can all go to Paris.
Jesus Caldera, now the Socialist minister for work and social affairs, put it succinctly a couple of years ago in an online debate run by El Mundo newspaper.
He was asked: “Will you reduce pensions given the recommendations that have been made to Spain recently?”
“No!” replied Caldera, then in opposition. “And I wish the OECD would go and poke its nose into something else.”
Not just the sentiment, but the tone is shared by his opposite number from the centre-right People’s Party.
“I’m very sceptical about comments from economists, consultants and all the other smart alecs,” says José Eugenio Azpiroz, the PP’s spokesman for social policy.
Despite repeated predictions of disaster, Spain’s pay as you go system has been going from strength to strength for so long now that further predictions have become just noise.
“The so-called independent experts all work for the banks, which have most to gain from the privatisation of pensions,” says Miguel Angel García, an economist at the Comisiones de Obreros (CCOO), one of the two biggest unions. “They are totally discredited here. They said the system would be in ruin by 2000 and the system is stronger than ever.”
Everyone apart from the bankers agrees that the social security system, far from being in crisis, is more solvent than ever before.
This consensus is codified in the Pact of Toledo, an agreement between political parties and unions on the underlying principles of the public pension system and the direction in it should be going in. In essence, this means a compulsory system of public pensions complemented by voluntary schemes such as occupational or individual private plans.
The public system has been generating a substantial surplus for the past few years, and, in accordance with the pact, successive governments have taken advantage of this to build up a reserve fund to cover future deficits.
The fund was set up in 2000 and is now worth nearly €19bn (unlike its slightly smaller French equivalent, there is no indication so far that it will be available to fund managers).
However, the unanimous optimism about the strength of the system does not mean the Spanish have their heads in the sand about demographics.
“There will come a point when an important nucleus of today’s contributors will retire,” acknowledges Azpiroz.
But the problem is not as acute as in other countries. Spain was never part of the Marshall Plan for rebuilding Europe after the war. It remained isolated from the rest of the west. The population didn’t begin to take off until the economic growth of the 1960s and even then did so relatively slowly.
“So Spain has one big advantage over other developed countries,” says Azpiroz. “Our population bulge will come 15 years after theirs. We can learn from the mistakes of countries like France and Germany.”

With this in mind, it is easier to understand how the Spanish, with a 15-year head start, a larger reserve fund already, and just two-thirds of the population of their northern neighbour, might feel more comfortable than the French.
They also have some unusual solutions to the problem of an ageing population.
Spain has twice the land mass of the UK and has just 39m people at last count compared with the UK’s
59m. There is room for plenty more workers if they can be found.
García argues that while there is little that can be done to change the number of those who will depend on pensions in the future (because they are already living in the country and growing old) the number of workers that will have make provisions to support them is still an open question.
He is calling for measures to support family life combined with a sensible approach to immigration. That, he says, could make a substantial difference to the working population in the time scale over which most experts are predicting disaster.
“The lack of support for families discourages couples from having children and the fact that women are still so poorly integrated into the workplace compounds the effect on the working population,” he says. “All of this inhibits the country’s ability to create wealth.”
Social spending for families and dependants has been cut back since 1993, points out Jaime Frades, García’s counterpart at the Unión General de Trabajadores.
Within the context of a general satisfaction with the way things
are going, there is still a desire to improve the way the current system works.
“The system needs to be reformed not just because of demographics,” says Frades. “Some of the rules, such as those on widows’ pensions are still governed by a law that dates from the 1950s.”
The government wants to make the relationship between an individual’s benefits and contributions clearer. And it will find support from the unions.
Workers in some sectors, such as agriculture, have access to special regimes that involve a fixed level of contributions. “For some people these contributions are purely symbolic,” says Frades. “Some contribute only 30% of their eventual pension.”
The voluntary private plans that complement the state provision within the Spanish system have had mixed results.
Azpiroz is not satisfied with what his party managed to achieve during its two terms in power, which ended
this year. “We made a great effort to introduce private pensions. The problem hasn’t been so much a lack of stimulus, as a dispersion of stimulus,” he says.
Azpiroz is also critical of the country’s financial institutions, which could have done more to explain
the issues to their clients. “At times the products launched have been driven by tax benefits rather than logic,” he says.
But the biggest failing in the Spanish system is occupational schemes. Of the 7m people making contributions to private schemes, nearly 90% are in individual schemes.
Again, it is the tax system that comes in for most criticism. “We don’t agree with the fiscal treatment of private plans,” says Frades. “Tax benefits should go to the collective plans. Individual plans aren’t really a form of social provision, they are just used for avoiding taxes.”
In the context of resolute agreement on the future of the public system, however, these issues are really
all about the detail. The only
real arguments that take place are personal.
Despite an hour-long discussion of how well the system has worked under both parties, Azpiroz doesn’t need much encouragement to attack his opposite number in the ministry of work and social affairs.
“The pensions secretary comes out with all these wild ideas for increasing the returns on the reserve fund,” he says. “These issues need to be treated with the gravity they deserve. We’re talking about a serious amount of money. They want to legalise homosexual marriage, but have they thought about how much that is going to cost the pension system in widower’s pensions? There are proper channels for discussing these things. Ministers shouldn’t just shout their mouths off in
In Spain, where politicians are genetically programmed to bicker and fight over the most trivial of issues, there is no reason to let a consensus on policy get in the way of a good old-fashioned row.