Pensions weigh on Spain. As much or more than most of its neighbors in the European Union. Although the bulk of the country’s boomers —born between 1957 and 1977— have not yet retired and the coverage rate of their pension system is lower than the European average, the spending that Spain allocates to them in relation to the size of its economy exceeded the simple average of the EU. If weighted measures are handled, it is already in tune with the region. The calculation has been prepared by the Bank of Spain (BDE), which has just published a report that leaves several reflections bouncing.

An expense that is above average (depending on the approach). This is one of the fundamental conclusions of the report. For its study, the BDE is based on results from 2019, prior to the distortions generated by the pandemic, but which do not include, for example, the 2021 reform. Its reading is clear: that year pension spending in Spain exceeded the average single from the EU. That is if the data is taken in relation to the size of its own economy. If what we use is a weighted average for GDP, which gives more weight to the systems of countries with strong economies, such as Germany or France, the value is similar to the weighted average of the region.

What does the data say? Taking Eurostat as a reference, the organization verified that in 2019 pension spending in Spain reached 12.7% of GDP, which places it above the simple average for the EU, which stood at 10.4 %. It has only six nations ahead: Greece (16.1%), Italy (15.9%), France (14.7%), Austria (14.1%), Portugal (13.7%) and Finland (13%). ,3%). In the rest, the ratio of spending to GDP did not reach 12.7% in Spain. The list is closed by Malta and Eastern European countries, such as Lithuania, Hungary, Latvia or Bulgaria, all below 10%.

If we take a more global image, in aggregate terms, with the average pension ratio of each country weighted by its GDP, the pension system stood at 12.7% of GDP. In this case, the level is similar to that observed in Spain. The measures taken by the BDE hide, however, as he himself admits, a “great heterogeneity” that is worth dwelling on.

Factors that mark the result of Spain. Curiously, Spain presents a series of factors that a priori should translate into lower pension spending. Which? To begin with, the aging of its population is less. Or rather, said, is delayed in a way. In Spain, the “baby boom” generation is usually set between 1957 and 1977, while in France, for example, it points to a somewhat later period, between 1946 and 1964. This can be a relief for the system at the moment, one with an expiration date and that points to future challenges.

Another key factor is known as the system coverage rate, which can be defined as the ratio between the number of pensioners aged 65 or over and the total population in that age group. In other words, what percentage of the older population receives a pension. In Spain it is lower. The third key factor that made up the portrait taken by the BDE in 2019 is the lower participation of wages in GDP compared to the EU: the lower the income of workers, ultimately, the lower the pensions will be. If all this should translate into lower pension spending in Spain than its neighbors, the million dollar question is: why not?

What raises spending in Spain then? The financial organization points out two factors that explain the national data. One, key, is that the amount of benefits in relation to the average salary is high. In Spain the data is generous. “The benefit rate – the average benefit on the average salary – reaches the third highest value in the EU in Spain,” explains the BDE in its report. In practice, this implies pension spending 34.1% higher than in Germany or 31.6% higher than France. Only Greece and Italy, at the top of the table, have higher data.

The other key element is the low employment rate in Spain. The updated tables of Datosmacro.com show that in 2022 ours was the country with the highest percentage of the European environment, in which only Greece comes close. With 12.4%, it marks almost double the average. “These are factors that drive spending on pensions in Spain compared to that of our partners,” he concludes.

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