Spain’s social security reserve fund – which acts as a financial cushion for the country’s state pension system – will be unable to afford bonus payments to pensioners after July this year, according to a recent press report.
“Those ‘gurus’ who say the situation will be resolved are simply lying.”
– Felipe Gonzalez, former prime minister
The Fondo de Reserva de la Seguridad Social (FRSS) was set up in 2000 to invest social security surpluses and fund future shortfalls in the state pension scheme.
At its peak in 2011, the FRSS portfolio was worth €67bn. Since then, however, its value has fallen substantially, as the government has regularly drawn on the funds in order to top up state pension payments.
Last July, the fund was worth €25bn, but after the government’s latest withdrawal of €936m in December, just over €15bn is left.
Each year, Spanish pensioners receive an extra month’s payment in July and December, which is one of the key reasons for the government’s dipping into the FRSS.
However, the influential Spanish newspaper El Mundo has predicted that at the current rate of withdrawals, the FRSS will be unable to fund bonus payments after this summer.
The story is just one strand in an animated public debate in Spain over the future of the state pensions system.
Luis Linde – governor of the Banco de España, Spain’s central bank – has said the state retirement age might have to be raised beyond the projected level of 67 years in order to ensure the financial sustainability of the public pensions system.
The current retirement age is 65 years and five months, increasing to 67 years by 2027. But Linde said further increases could become necessary.
He said: “This could be justified by people’s longer life expectancy, their joining the workforce later, the reduced physical demands of most jobs today, and people’s better health at more advanced ages. Any measures that discourage early retirement and allow people to extend their working lives beyond the age of 67 would have a positive bearing on the financial sustainability of the system.”
Linde was appearing before the parliamentary committee for the monitoring and assessment of the Toledo Pact agreements.
Alberto Nadal, Spain’s secretary of state for budget and expenditure, told the same committee that should the FRSS run out of funds, the government could issue debt to help pay pensions. Spain’s ratio of government debt to GDP is one of the highest in Europe at 99.2%, according to TradingEconomics.com.
Nadal also suggested policymakers should search for a balance between taxation and workers’ contributions to finance the pensions system. He categorically ruled out privatising the system.
However, Nadal said: “In the long term, our system depends fundamentally on the strength of the Spanish economy. The funding of the pensions system is based on workers’ contributions and the guarantee for a sound system in the long term is stable and growing employment.”
Meanwhile, former Spanish prime minister Felipe Gonzalez told a forum on state pensions organised by business newspaper Cinco Dias that the pensions system cannot be guaranteed over the next 30 years.
He added: “Those ‘gurus’ who say the situation will be resolved are simply lying.”