Social Security moderates the influence of pension spending to 14% of GDP till 2050 after the alarm over its excessive value | Economy | EUROtoday

The influence that rising pension spending has on public accounts is a thorny subject that the Government and opposition usually battle with, in addition to the consultants themselves. With the intention of guaranteeing the long run monetary sustainability of the system, the Government introduced this Thursday “a spending projection tool more powerful and reliable than any other to date.” This is how Social Security sources describe the brand new calculation mannequin, which they’ve known as INTegraSS and which reduces the influence of the pension invoice on the GDP after the priority that completely different voices have expressed about its excessive value.

This instrument, sponsored in its presentation by the primary vp of the Government and Minister of Economy, Carlos Body, and the spokesperson for the Executive and Minister of Social Security, Elma Saiz, affords “the projection of the system most adjusted to reality that can be made now, indicate from the Executive. And the result of the first calculations with this tool foresees a more moderate impact on pension spending than those carried out so far by other agents involved, such as the Airef (tax authority) or the European Commission. Specifically, INTegraSS indicates that the bill of the system, including all types of pensions, contributory (also those of passive classes, those of civil servants) and assistance will amount to an average of 14% of GDP in the period 2022-2050, which is the one analyzed by this tool, compared to higher percentages, such as 14.4% calculated by the tax authority, or 15.4% in Brussels (which corrected drops to 14.6% on average in said period). Currently, pension spending is somewhat below 13% of GDP.

To arrive at these estimates, less alarming than those advanced by the aforementioned organizations and other pension experts who have warned about the unsustainability of the current system, Social Security uses all the databases it manages and which include all the pensions in force; the flows of highs and lows; the benefits recognized and detailed broken down (by age, year of birth and sex) of 34 generations of Spanish workers (from 1938 to 1972), as well as all partial retirements. These databases are combined with the projections prepared by those responsible for the macrodemographic scenario tool (which fundamentally reflects the evolution of GDP, the active and inactive population).

At this point, those responsible for the new projection model highlight that even the macroeconomic and demographic estimates that they have incorporated are the official ones from the INE with “even conservative adjustments” that reflect the progress of all these indicators in recent years. However, the result may be used by the Government to advance in decision-making about the system – in fact its results will be published periodically – but, for the moment, they will not be used by the European Commission, which prepares its own estimates in its aging report. (Ageing Report) and they will continue to do so. These community calculations are the official ones and from which the Airef starts to make its evaluation of the system.

The percentage of spending on pensions is important when analyzing the sustainability of the system and is a key piece in the design of public accounts. The last pension reform established a so-called closure clause – which served to ensure that the changes received the approval of Brussels as part of the milestones of the recovery plan – which consists of that if pension spending grows too much in relation to the system’s income, measures must be taken to correct it.

The body in charge of evaluating the progress of the system is Airef, which must issue a report every three years to determine whether or not the aforementioned closure clause should be activated. The first of these evaluations, carried out a year ago, was not without controversy. The supervisory body considered that Spain incurred an expense net expenditure (the gross expenditure forecast in the European Commission’s aging report, less the extra income of the system due to the latest reforms) of 13.2%, only one tenth less than what the Airef calculated as the limit to activate the closure clause and adopt corrective measures, which set the average for the period analyzed at 13.3% of GDP.

In this way, Spain passed by the minimum and avoided activating said automatic mechanism but, even so, the Airef issued a harsh report in which it detected “important methodological weaknesses” due to the indications given by the Government to carry out this evaluation. He also added that, consequently, its examination did not constitute an indicator of the current sustainability of the pension system.

The main methodological criticism of Airef, shared in part by the European Commission, affected how the Spanish Government accounted for tax transfers from the State to Social Security for the payment of pensions, the financing of which is not sufficient with income from contributions. Given this, Brussels considered it necessary for Airef to repeat its examination of the Spanish system, before June 2026, as part of the control requirements within the framework of the payment of European funds.

In this scenario, the Executive now awaits the result of this new evaluation from the Airef. Social Security sources hope that the pension system will continue to pass the exam and, like the result from a year ago, will not require taking measures to cut expenses or increase income. In fact, they are confident that the good performance of the Spanish economy in general and the increase in contribution income derived from strong growth in employment and GDP will compensate for the elimination of State transfers as income in the new evaluation.

But, regardless of the first results of this tool, Corpus has highlighted its value as an instrument to “anticipate selections that within the case of pensions should be made many years upfront.” Because, as he has acknowledged, until now “long-term influence estimates have been the poor brother in financial evaluation that emphasizes the quick or very quick time period” and, many times, he added, those in charge of making legislative decisions “have moved blindly.”

For her part, the head of Social Security, Elma Sáiz, explained that in Spain “it was an anomaly that having all the information from the administration (of the general public pension system) we didn’t have our public projection software.” This will subsequently be the route that the present Executive and subsequent ones will use to make official spending projections primarily based on completely different simulations of system habits and the results of doable reforms.