The next beginning (from 2023) of the retirement of the generation of the baby boom It is going to be a major challenge for the already tight accounts of Social Security. The proposal of the ministry led by José Luis Escrivá to raise social contributions by 0.5% between 2023 and 2032 to guarantee the public pension for this group already has some projections against it.
From the consultant Willis Towers Watson estimate that this additional contribution it would barely serve to pay less than two monthly Social Security pension payrolls.
According to Gregorio Gil de Rozas and Rafael Villanueva, heads of the consulting firm’s Retirement area in Spain, the proposed measure raises “some doubts”.
The most immediate, on its scope. According to estimates by Enrique Devesa, Professor of Financial and Actuarial Economics at the University of Valencia and member of the Willis Towers Watson Pension Observatory, the annual collection of this measure, taking into account the average base of Social Security contributions, would be around 1,700 million euros.
In the whole period of ten years, it would be about 17,000 million, which “represents less than two monthly Social Security pension payrolls”, given that the latter October 10,251 million have been paid, of which 7,389 have corresponded to retirement pensions.
The measure would be part of the Intergenerational Equity Mechanism that Social Security has presented this week to the social agents. With it, they seek to ‘fill’ the pension piggy bank, which is formally known as the Social Security Reserve Fund.
But this would not be the only implication, since there would be more derivatives. It could affect the contributory nature of the system, since this additional contribution would not generate new pension rights. “The workers would be incurring an additional ‘expense’ that would not bring them a higher benefit,” the experts explain.
“Also can question the intergenerational pact of pensions”, they warn, since an additional effort is required, not reflected in future rights, from all workers, with the focus of reinforcing the pension piggy bank in the face of the challenge of a specific generation: the baby boomers.
Less job creation
From the macro point of view, it also implies an increase in labor costs, “in an environment of uncertainty about the recovery and growing global competitiveness, have a direct impact on job creation. these experts fear.
Gil de Rozas and Villanueva are critical of Escrivá’s proposal, which they describe as “more a kick to the front than a measure that can really help the demographic challenge.” In their opinion, “gradual and automatic” adjustment measures should be established, and they believe that the repealed Sustainability Factor, which gradually adjusted the amount of the pension of new retirees to the evolution of life expectancy, was more efficient.
The financial community continues to do lobby by change the pay-as-you-go system of the first pillar for a capitalization system. In this regard, Value Schoolthe informative project on investment sponsored by the fund manager Francisco García Paramés, has made a documentary in which he asserts that it is “a broken system, based on the paternalism of the State, which discourages saving and, in general, the economic growth”.
The various experts who appear in the documentary – ‘It is neither justice nor social: the public pension system’ – think that the pay-as-you-go system harms workers. For example, “for a worker with a net salary of 1,250 euros, the system is extracting 750 euros per month from his payroll, which are intended to pay the monthly pensions of retirees and which does not ensure that when the time comes to collect his pension will be able to do so with guarantees”.
“It would be necessary to restore a pension financing system based on capitalization. A system based on savings and the accumulation of funds”, emphasizes Jesús Huerta de Soto, professor of Political Economy at the Rey Juan Carlos University in Madrid. In this method, contributions are accumulated to obtain profitability in the financial markets and, when retirement comes, generate a nominal life annuity for each worker, puts José Antonio Herce, an expert in longevity and pensions at the consulting firm LoRIS, into context.
However, the transition to a capitalization system would have a cost. According to Huerta de Soto, in Spain the cost of this transition would be a quarter of the current cost of Social Security.