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Required stability of pension

Pensions are a priority issue, as they affect many people who, throughout their lives, with their effort and daily work,…

By admin , in news , at May 10, 2022

Pensions are a priority issue, as they affect many people who, throughout their lives, with their effort and daily work, have earned the right to enjoy retirement pensions. These people were in solidarity with their contributions to Social Security, which allowed the pensions of their elders to be paid, and now, they receive their pensions based on the entitlement they earned during those years, thanks to the solidarity that it is today. Those people who are active in the present, because the coming generations will be with the workers of today.

So, it is not that it is a sensitive issue, but that one does not want pensions to be abolished or reduced, on the contrary: what the whole society wants, including all politicians, is that pensions should be strengthened. are old, and are guaranteed.

However, it must take sound decisions that allow for its feasibility, and avoid the indiscretions that increase the stability of the system. Well, with the government’s measures on the pension stability factor and its unclear plans regarding what reforms it is going to propose, it cannot be said that it represents progress in the effort to achieve the stability of the pension system. Rather, what it does is endanger the pension system, destroying their stability.

Why? Because although it’s an effort to delay the effective retirement age—not only because of the necessary cost to Social Security, but also because of the talent loss caused by wasting all of those retirees’ experience in advance—something is necessary. Not taking aspects into account, eliminating other positive aspects, the completion of which is detrimental to the system, and introduces some very dangerous aspects. It is not certain, as the reform process is just beginning, but it will be necessary to see how some aspects persist, such as inter-generational parity, but are taking steps now to follow the overall improvement. going can already be seen.

Among them which the government is reluctant to take is not considering the entire working life of a citizen while computing his pension. In this way, not only could this be an added loss to Social Security in some cases, but it could hurt many contributors who have been able to rely on a reduced contribution basis in their previous years due to restructuring in their jobs. It is quite possible that Brussels will force Spain to take this measure, but the executive will continue to oppose it.

On the other hand, it eliminates the stability factor of pensions, which introduced life expectancy into their calculations, which allowed them to accommodate a significant component of intergenerational solidarity within an individual’s life cycle, and above all, Much is pending definition of the viability of the system except, as I say, what they call an inter-generational equity mechanism.

Similarly, it omitted the index of revaluation of pensions, which allowed limiting its increase to 0.25% in the event of a decrease in public accounts. This made it possible to mark a revaluation floor, which would guarantee pensioners an increase, no matter how small, in tough economic times, so that all pensions would increase by at least that percentage, but by not indexing them. Prevents suffering from strong growth. to CPI. This has been abolished and indexation is maintained along with the CPI, which can lead to strong growth in times of high inflation – such as we are experiencing right now – and strong budgetary imbalances, which can affect the balance of accounts and the pension system. Stability will also remain more negative, with the cost of pensions increasing by 30,000 million more, as estimated by both FEDEA and the Bank of Spain.

And, finally, it introduces a very dangerous element, such as implementing 22,000 million euros of coverage annually for Social Security from the general state budget (PGE), so that may change the problem, but it does little to solve it. Doesn’t either. This will only serve to strengthen it and increase the deficit system, even if it is hidden under the budget balance of the general state administration instead of social security. It would only make sense for one of the capitalizations to be in a floating system, so that the difference would be assumed by the PGE during the said transition. It will be costly, but the problem will be limited to two or three generations, it will not be left unresolved as is the case with the proposal made by the government without meeting the increasing cost every year. It is clear that changing from a pay-as-you-go system to a capitalization system is not easy or quick – and it will probably no longer be possible in Spain, although this should not be ruled out without in-depth study – but it is only if Occurs when contributions from the PGE for generations who are now due to age, through capitalization, and for those who are now collecting pensions, which obviously cannot be left without their accrued rights.

At the very least, an attempt should be made to arrive at a system of fictitious accounts such as the one the Nordic countries have been implementing for some time. What cannot be done is to continue to deny the evidence. It is an issue that must be addressed, technically, by refusing to implement the reforms necessary to keep the system standing, not to engage in politics, to guarantee the rights of the system and pensioners, not to engage in politics in the present and future. Not at all to jeopardize pensions. And, unfortunately, in this government there is more politics than positive proposals to solve the problem, because they eliminate good deeds and introduce others that contribute to worsening the state of the system.

Therefore, the government does not address the real problem of the pension system, which is urgent, because, if not, the system would be mathematically insolvent, but it defers over time by running away from its responsibilities and thus it risk. It may be hard to say, but it is true, and so is what policymakers should say. Therefore, it is not a question of ideologies but of actuarial mathematics. We have more and more pensioners and those pensioners get more pension than before, and they do so for a long time, with less assets to support them.

The absence of greater technical rigor and the prevalence of political positions by the government is bad news for pensioners, as it paves the way for them, rather than foreseeing the risks of the system, with the resulting acceleration of a potential collapse. Social Security tends to be a type of permanent, growing debt that would not be sustainable at current levels of public debt, in addition to being unconventional to feed Social Security into its contributory portion, with income not from contributions. Comes. If you go down that path, the viability of the system will be at risk; Over time, pensioners would have a much lower pension, which would be more like a welfare pension than a contributory pension, as the present had to face reductions for not reforming the present, and this would in fact be applicable to all pensioners. That would be a big fraud. ,

Jose Maria Rotellar He is a professor at the University of Francisco de Vittoria.