Fedea warns that the pension safeguard clause must be activated immediately

It is no secret that the Foundation for Applied Economics Studies (Fedea) radically disagrees with the calculations of the Ministry of Inclusion and Social Security regarding the effects of the pension reform.

Oliver Thansan
Oliver Thansan
03 May 2023 Wednesday 10:26
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Fedea warns that the pension safeguard clause must be activated immediately

It is no secret that the Foundation for Applied Economics Studies (Fedea) radically disagrees with the calculations of the Ministry of Inclusion and Social Security regarding the effects of the pension reform. Where José Luis Escrivá sees a perfectly sustainable scenario, and at that point he has the support of Brussels, Fedea warns of the consequences of the increase in spending that it will entail.

In the third and last report in the series dedicated to analyzing the budgetary effects of the reform, Fedea warns that it will force the activation of the safeguard clause of the Intergenerational Equity Mechanism (MEI) "immediately", and that it will mean an increase in contribution rates of between three and four points in five years.

Fedea comes to the conclusion that the reform will increase spending on pensions much more than contribution income, which will mean a significant and growing basic deficit for the public system (ie, before State transfers). The calculations that it has carried out indicate that the automatic safeguard clause, designed for a future guarantee, will have to be activated immediately and that, in addition, "it will limit the magnitude of the problem, but without finishing fixing it." It is only a partial solution, argues the study center, because even with the mechanism activated, it would leave the system with a still very important basic deficit, 3.2% of GDP on average between 2022 and 2050, and around 5% in 2050.

The report prepared by the deputy director of Fedea, Ángel de la Fuente, predicts that total spending on public pensions will reach 17.8% of GDP in 2050, which is 2.5 points above the ministry's estimates. In this way, Spain would be positioned as one of the countries with the highest public spending on pensions as a percentage of GDP, a difference of 5.2 points above the European Union average. It would even be 1.6 points above Italy, which would be in second place.

The figures are very different from those calculated by the Ministry of Inclusion, largely due to two basic discrepancies. It is about the divergence on the budgetary effects of the incentives for delayed retirement and the reform of the contribution system of the self-employed. Fedea alleges that the ministry makes very optimistic assumptions about the incidence of delayed retirement, and also that it does not take into account that both these incentives and the reform of the self-employed will have a delayed effect on spending, through higher future pensions.