SPAIN - Pension reform needs to be placed upfront on the policy agenda as progress on the pension reform has been “disappointingly slow”, the International Monetary Fund has told Spain.

The IMF said in a report that the Pact of Toledo of 1996 had been an “effective instrument” to build consensus on an agenda for pension reforms.

The pact between five parties aimed at launching an analysis of the social security system and highlighting the need for change.

“But after partial measures in 1997, progress has been disappointingly slow,” the IMF stated. “Still, at present reform measures could be phased in gradually, with relatively muted immediate effects, avoiding the need for more radical action as the demographic shock nears.”

This “shock” will come later in Spain than in other countries, but “stands to be considerable, even under favourable population and immigration assumptions,” the IMF has warned.

“Pension reform thus needs to be placed upfront on the policy agenda, aiming for a gradual increase in the effective retirement age and an improved alignment of benefits and contributions.”

The fund has especially pointed its finger at the mechanisms for pension calculation which “now perversely encourage early retirement”.

“They need to be corrected, with a potentially powerful growth effect,” the IMF has recommended.

“Measures should be taken to address the overly generous provisions governing surviving spouses' pensions, viudedad, and abuses of disability benefits and sick leave.”

The IMF’s report also features positive data such as the overall performance of the Spanish economy, which has been described as “distinctly positive” with “brisk” output growth and employment creation.

“A key feature of this performance is the shared recognition - across party lines and through society - of the benefits of fiscal stability, wage moderation, and growth-enhancing structural reforms, and the pursuit of policies consistent with these goals” the IMF said.